Beijing () Luxury Western brands selling designer handbags and handmade suits to China's newly-rich, may find their local distributors want a bigger role or even ownership given the $10 billion (Dh36.7 billion) market is booming. Takeover activity is expected to pick up next year, say analysts, and is likely to involve emerging market investors, particularly the Chinese.

Design and fashion houses rich in heritage, but which have fallen on hard times, look to be top picks. The recession, saw the luxury sector fall into its worst ever slump with global sales sliding by 8 per cent last year.

"For sure there are many players and new groups, banks and private equity funds from China that are interested to scout for old brands to develop or turnaround in the Asian markets," Bain & Co. partner Claudia D'Arpizio told Reuters.

Following in the footsteps of Chinese firms YGM Trading, Mensun and Li & Fung, which now own, or have been in talks with distressed brands in the past, conglomerates and distributors are likely to feature among interested parties. YGM Trading, which bought French house Guy Laroche in 2004 and is the Asian licensee for British brand Aquascutum, told Reuters it was on the look out for deals.

"We are still trying to add brands to our portfolio through house brands, licensee brands, distributors and acquisitions. We're still expanding, it's an ongoing process," its CEO Shirley Chan said.

Fosun International, which took a stake in French resorts operator Club Med in June, said a month later it was in talks with European luxury companies about potential investments.

Target profile

The target profile is brands like Italian fashion house Cavalli — big enough for Chinese consumers to have an awareness of, but not too big to either be bought or to be amenable to tie in deals.

In contrast, household names such as Louis Vuitton or Chanel are unlikely to become serious targets.

"I expect Chinese and emerging market investors to be relatively cautious in terms of the absolute amounts and the multiples that they pay, so I would think they would go for a smaller, rather than a higher profile acquisition," Bernstein senior analyst Luca Solca told Reuters Insider.

Analysts say that heritage-rich brands, especially ones badly hurt in the financial crisis, are likely to be most sought after as they offer the opportunity to be repackaged for a home market hungry for luxury.

China possesses only a handful of home-grown brands, and most local players act as distributors for Western labels, or as joint-venture partners. Sales in China, currently the world's second-largest luxury market behind Japan, jumped by 12 per cent to $9.6 billion (Dh35.2 billion) last year, according to consultancy Bain & Co.

In a study by the World Luxury Association, this figure is predicted to grow further to $14.6 billion in the next five years, making it the world's biggest luxury market. "Now's a great time to get some of these iconic failing brands that have been hurt by the recession and sort of rejuvenate them, resurrect them and rebrand them for the China market," Shaun Rein, managing director of Shanghai-based Chinese Market Research Group told Reuters.

Notable exceptions

Such is the appeal of the Chinese market that local groups are not getting it all their own way. Some Western brands, such as Burberry, Longchamp and Polo Ralph Lauren have bought back their stores in China.

That has put pressure on distributors and some may now need to find alternative sources of income, or may be simply attracted by the rewards that selling branded goods bring. Distributors may start wanting to move up the value chain, said Rein. "You see a lot of distributors that are making more money in China" he said

"They've done a better job than the [foreign] company in their home market, so they just want to buy the whole brand."