424B3 1 d247700d424b3.htm 424B3 424B3
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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-262242

PROSPECTUS

Ermenegildo Zegna N.V.

Up to 231,802,500 Ordinary Shares

Up to 20,116,667 Ordinary Shares Issuable Upon Exercise of Warrants

Up to 6,700,000 Warrants

 

 

This prospectus relates to the issuance by us of up to 20,116,667 of our ordinary shares, nominal value €0.02 per share (“Ordinary Shares”), which include up to (i) 6,700,000 Ordinary Shares issuable upon the exercise of 6,700,000 private placement warrants (the “Private Placement Warrants”) originally issued by Zegna in a private placement transaction in connection with the Business Combination (as defined below) at an exercise price of $11.50 per Ordinary Share, and (ii) 13,416,667 Ordinary Shares issuable upon the exercise of 13,416,667 warrants (the “Public Warrants” and, together with the Private Placement Warrants, the “Warrants”) originally issued to public shareholders of Investindustrial Acquisition Corp. (“IIAC”) in its initial public offering, and converted into warrants to purchase Ordinary Shares at the closing of the Business Combination at an exercise price of $11.50 per Ordinary Share.

This prospectus also relates to the offer and sale from time to time by the selling securityholders or their permitted transferees (collectively, the “selling securityholders”) of (a) up to 231,802,500 Ordinary Shares (including (i) up to 37,140,000 Ordinary Shares issued to certain selling securityholders concurrently with the closing of the business combination (the “Business Combination”) between us and Investindustrial Acquisition Corp., a Cayman Islands exempted company, (ii) up to 6,700,000 Ordinary Shares issuable upon exercise of our private placement warrants, and (iii) up to 187,962,500 Ordinary Shares currently held by certain selling shareholders) and (b) up to 6,700,000 of our private placement warrants.

This prospectus also covers any additional securities that may become issuable by reason of share splits, share dividends or other similar transactions.

We are registering the offer and sale of the securities described above to satisfy certain registration rights we have granted. We are registering these securities for resale by the selling securityholders named in this prospectus, or their transferees, pledgees, donees or assignees or other successors-in-interest that receive any of the shares as a gift, distribution, or other non-sale related transfer. The selling securityholders may offer all or part of the securities for resale from time to time through public or private transactions, at either prevailing market prices or at privately negotiated prices. These securities are being registered to permit the selling securityholders to sell securities from time to time, in amounts, at prices and on terms determined at the time of offering. The selling securityholders may sell these securities through ordinary brokerage transactions, directly to market makers of our shares or through any other means described in the section titled “Plan of Distribution”. In connection with any sales of the securities offered hereunder, the selling securityholders, any underwriters, agents, brokers or dealers participating in such sales may be deemed to be “underwriters” within the meaning of the Securities Act of 1933, as amended.

All of the Ordinary Shares and Warrants offered by the selling securityholders pursuant to this prospectus will be sold by the selling securityholders for their respective accounts. We will not receive any of the proceeds from the sale of Ordinary Shares or Warrants by the selling securityhoderls or the issuance of Ordinary Shares by us pursuant to this prospectus, except with respect to amounts received by us upon exercise of the Warrants.

We will pay certain expenses associated with the registration of the securities covered by this prospectus, as described in the section titled “Plan of Distribution”.

The Ordinary Shares and our Public Warrants are listed on the New York Stock Exchange (“NYSE”) under the symbols “ZGN” and “ZGN WS,” respectively. On January 14, 2022, the closing sale price as reported on NYSE of the Ordinary Shares was $9.75 per share and of our Public Warrants was $1.87 per Public Warrant.

We may amend or supplement this prospectus from time to time by filing amendments or supplements as required. You should read this entire prospectus and any amendments or supplements carefully before you make your investment decision.

Our principal executive offices are located at Viale Roma 99/100, 13835 Valdilana loc. Trivero, Italy.

 

 

Investing in our securities involves a high degree of risk. Before buying any securities, you should carefully read the discussion of material risks of investing in our securities in “Risk Factors” beginning on page 14 of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed on the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

 

 

Prospectus dated January 28, 2022


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TABLE OF CONTENTS

 

PROSPECTUS SUMMARY

     1  

THE OFFERING

     6  

SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION

     7  

SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

     12  

RISK FACTORS

     14  

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     35  

USE OF PROCEEDS

     37  

DIVIDEND POLICY

     38  

CAPITALIZATION

     39  

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

     40  

BUSINESS

     60  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     86  

BOARD OF DIRECTORS AND SENIOR MANAGEMENT

     140  

COMPENSATION

     149  

DESCRIPTION OF SECURITIES

     158  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     176  

BENEFICIAL OWNERSHIP

     178  

SELLING SECURITYHOLDERS

     180  

TAXATION

     186  

PLAN OF DISTRIBUTION

     214  

SHARES ELIGIBLE FOR FUTURE SALE

     220  

EXPENSES RELATED TO THE OFFERING

     222  

LEGAL MATTERS

     223  

EXPERTS

     223  

WHERE YOU CAN FIND MORE INFORMATION

     223  

INDEX TO FINANCIAL STATEMENTS

     FIN-1  

You should rely only on the information contained in this prospectus, any amendment or supplement to this prospectus or any free writing prospectus prepared by us or on our behalf. Neither we, nor the selling securityholders, have authorized any other person to provide you with different or additional information. Neither we, nor the selling securityholders, take responsibility for, nor can we provide assurance as to the reliability of, any other information that others may provide. The selling securityholders are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. The information contained in this prospectus is accurate only as of the date of this prospectus or such other date stated in this prospectus, and our business, financial condition, results of operations and/or prospects may have changed since those dates.

Except as otherwise set forth in this prospectus, neither we nor the selling securityholders have taken any action to permit a public offering of these securities outside the United States or to permit the possession or distribution of this prospectus outside the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about and observe any restrictions relating to the offering of these securities and the distribution of this prospectus outside the United States.

 

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ABOUT THIS PROSPECTUS

This prospectus is part of a registration statement on Form F-1 that we filed with the United States Securities and Exchange Commission (the “SEC”) using a “shelf” registration process. Under this shelf registration process, the selling securityholders may, from time to time, offer and sell any combination of the securities described in this prospectus in one or more offerings.

We will not receive any proceeds from the sale of Ordinary Shares or Private Placement Warrants to be offered by the selling securityholders pursuant to this prospectus, but we will receive proceeds from Warrants exercised in the event that such Warrants are exercised for cash. We will pay the expenses, other than underwriting discounts and commissions, if any, associated with the sale of our Ordinary Shares and Private Placement Warrants pursuant to this prospectus. To the extent required, we and the selling securityholders, as applicable, will deliver a prospectus supplement with this prospectus to update the information contained in this prospectus. The prospectus supplement may also add, update or change information included in this prospectus. You should read both this prospectus and any applicable prospectus supplement, together with additional information described below under the caption “Where You Can Find More Information.” We have not, and the selling securityholders have not, authorized anyone to provide you with information different from that contained in this prospectus. The information contained in this prospectus is accurate only as of the date on the front cover of the prospectus. You should not assume that the information contained in this prospectus is accurate as of any other date.

No offer of these securities will be made in any jurisdiction where the offer is not permitted.

On December 17, 2021 (the “Closing Date”), we closed the previously announced Business Combination pursuant to the Business Combination Agreement, dated as of July 18, 2021, as amended, by and among us, IIAC and EZ Cayman, a Cayman Islands limited liability company and our wholly owned subsidiary. For more information on the Business Combination, please see the section “Prospectus Summary—Recent Developments—Closing of the Business Combination”.

Unless the context indicates otherwise, the terms “Zegna,” the “Company,” “we,” “us” and “our” refer to Ermenegildo Zegna N.V. (formerly Ermenegildo Zegna Holditalia S.p.A.).

CERTAIN DEFINED TERMS

In this prospectus:

Affiliate” means, with respect to any Person, any other Person who directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. The term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise, and the terms “controlled” and “controlling” have meanings correlative thereto.

Balance Sheet Exchange Rate” means the USD:EUR exchange rate of 0.8415, being the publicly available USD:EUR exchange rate on June 30, 2021.

Business Combination” means the business combination between Zegna and IIAC, which was completed on December 17, 2021.

Business Combination Agreement” means that certain Business Combination Agreement, dated as of July 18, 2021, by and among IIAC, Zegna, and Zegna Merger Sub, as amended or supplemented from time to time.

 

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Capital Distribution” means a return of capital distribution under Cayman Islands law whereby, on the Closing Date, immediately following the PIPE Financing and prior to the Share Repurchase, IIAC distributed the Capital Distribution Amount to Zegna.

Capital Distribution Amount” means an amount of €191,806,537.10 plus $105,380,150.53.

Cash Consideration” means an amount of €455,000,000.

Class A Shares” means the Class A ordinary shares, par value $0.0001 per share, of IIAC prior to the Merger.

Class B Shares” means the Class B ordinary shares, par value $0.0001 per share, of IIAC prior to the Merger.

Closing” means the closing of the Business Combination.

Closing Date” means December 17, 2021.

Conversion” means the cross-border conversion whereby, on the Closing Date, Zegna, by means of the execution of a Dutch notarial deed of cross-border conversion and amendment of its articles of association, converted into a Dutch public limited liability company (naamloze vennootschap) and transferred its legal seat from Italy to the Netherlands and amended its articles of association, as a result of which Zegna assumed its current legal name “Ermenegildo Zegna N.V.”

DCGC” means the Dutch Corporate Governance Code.

Demerger” has the meaning set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Disposition” has the meaning set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.

DOSs” means directly operated stores.

DTCmeans direct-to-consumer.

Effective Time” means the time the Merger became effective on the Closing Date.

Escrowed Shares” means 50% of the Ordinary Shares that were issued to the IIAC Initial Shareholders in exchange for their Class B Shares, which Ordinary Shares are held in escrow subject to the release conditions described in the prospectus.

Exchange Act” means the Securities Exchange Act of 1934, as amended, together with the rules and regulations promulgated thereunder.

Forward Purchase” means the transactions contemplated by the Forward Purchase Agreement.

Forward Purchase Agreement” means the forward purchase agreement between IIAC and the FPA Purchaser, dated as of November 18, 2020, as amended on July 26, 2021.

FPA Purchaser” means Strategic Holding Group S.à r.l., an affiliate of the IIAC Sponsor.

 

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Hedged Positions” means the hedging positions and arrangements that effectively transfer the economic interest of any member of the Sponsor Group in Zegna to a third party (e.g., forward sale contracts); provided, that the definition of “Hedged Positions” shall not include hedging positions and arrangements (a) in which the economic interest of any member of the Sponsor Group in Zegna is retained (e.g., pledges and margin loans), (b) that minimize exposure to certain risks independent of the business operations of Zegna (e.g., currency exchange swaps) or (c) that marginally cap or limit the upside/downside risk of any member of the Sponsor Group while maintaining material economic exposure (e.g., puts, calls and collars), as determined in good faith by the Zegna Board and such member of the Sponsor Group.

IIAC” means Investindustrial Acquisition Corp., a Cayman Islands exempted company.

IIAC Initial Shareholders” means the FPA Purchaser, Sergio P. Ermotti, Audeo Advisors Limited, Jose Joaquin Guell Ampuero, Dante Roscini and Tensie Whelan.

IIAC Ordinary Shares” means collectively the Class A Shares and the Class B Shares prior to the Merger.

IIAC Private Placement Warrants” means the warrants that were issued to the IIAC Sponsor in a private placement at the time of the IIAC initial public offering consummated on November 23, 2020, each of which was exercisable for one Class A Share at an exercise price of $11.50 per share.

IIAC Public Warrants” means warrants to acquire Class A Shares, issued as part of units in the IIAC initial public offering consummated on November 23, 2020, at an initial exercise price of $11.50 per share.

IIAC Warrants” means the IIAC Private Placement Warrants and the IIAC Public Warrants.

IIAC Sponsor” means Investindustrial Acquisition Corp. L.P., a limited partnership incorporated in England and Wales.

IIAC Sponsor Lock-Up Agreement” means the lock-up agreement, entered into at the Closing, by and among Zegna, IIAC Sponsor and the IIAC Initial Shareholders.

Insider PIPE Subscribers” means certain inside subscribers among the PIPE Investors (including the FPA Purchaser, Sergio P. Ermotti and Ermenegildo Zegna di Monte Rubello).

Loyalty Register” has the meaning set forth in “Description of Securities—Loyalty Voting Structure.

Merger” means the merger of Zegna Merger Sub with and into IIAC, with IIAC being the surviving company.

Minimum Holding Requirement” means the beneficial ownership (as such term is defined in Rule 13d-3 under the Exchange Act) by the Sponsor Group, of at least 5% of the issued and outstanding Ordinary Shares, excluding (i) any Hedged Positions as evidenced by the IIAC Sponsor in writing and (ii) any Escrowed Shares that have not been released from escrow to the applicable Sponsor Group member.

Monterubello” means Monterubello s.s., an Italian società semplice.

New Warrant Agreement” means the Warrant Agreement entered into concurrently with the Closing, by and between Zegna, Computershare Trust Company, N.A., and Computershare Inc.

NYSE” means the New York Stock Exchange.

Offset PIPE Financing” means the private placement of 12,500,000 Ordinary Shares to the Offset PIPE Investors, for gross proceeds to Zegna in an aggregate amount of $125,000,000, pursuant to the Offset Subscription Agreements.

 

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Offset PIPE Investors” means investors in the Offset PIPE Financing pursuant to the Redemption Offset Agreements and the Offset Subscription Agreements.

Offset Subscription Agreements” means those certain subscription agreements entered into on December 16, 2021, among IIAC, Zegna and the Offset PIPE Investors named therein.

Ordinary Shares means the ordinary shares, nominal value €0.02 per share, of Zegna.

Person” means an individual, partnership, corporation, limited liability company, joint stock company, unincorporated organization or association, trust, joint venture or other similar entity, whether or not a legal entity.

PIPE Financing” means the private placement of 25,000,000 Ordinary Shares to the PIPE Investors, for gross proceeds to Zegna in an aggregate amount of approximately $250,000,000, pursuant to the PIPE Subscription Agreements.

PIPE Investors” means the investors (including the Insider PIPE Subscribers) in the PIPE Financing pursuant to the PIPE Subscription Agreements.

PIPE Shares” means the 37,500,000 Ordinary Shares that were issued to certain securityholders in connection with the closing of a private placement offering concurrent with the Closing.

PIPE Subscription Agreements” means those certain subscription agreements entered into on July 18, 2021, among IIAC, Zegna and the PIPE Investors named therein relating to the PIPE Financing.

Private Placement Warrants” means warrants to acquire Ordinary Shares on the same contractual terms and conditions as the IIAC Private Placement Warrants.

Public Warrants” means warrants to acquire Ordinary Shares on the same contractual terms and conditions as the IIAC Public Warrants.

Redemption Offset Agreements” means the agreements entered into on December 3, 2021, among IIAC, Zegna and the Offset PIPE Investors named therein relating to the offset of redemptions of Class A Shares by IIAC public shareholders up to a certain level.

Registration Rights Agreement” means the registration rights agreement entered into at Closing, pursuant to which the IIAC Initial Shareholders and the Zegna Shareholders have been granted certain registration rights with respect to their respective equity securities in Zegna, in each case, on the terms and subject to the conditions in such registration rights agreement.

Sarbanes-Oxley Act” means the Sarbanes-Oxley Act of 2002, as amended.

SEC” means the United States Securities and Exchange Commission.

Securities Act” means the Securities Act of 1933, as amended, together with the rules and regulations promulgated thereunder.

Shareholders Agreement” means the shareholders agreement entered into at Closing by and among Zegna, the IIAC Sponsor, Monterubello and Mr. Ermenegildo Zegna.

Share Repurchase” means the repurchase by Zegna of 54,600,000 Ordinary Shares from Monterubello in exchange for the Cash Consideration.

 

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Sponsor Group” means the IIAC Sponsor together with its Affiliates.

Surviving Company” means IIAC following the Merger.

Terms and Conditions of the Zegna Special Voting Shares” means the terms and conditions that apply to the issuance, allocation, acquisition, conversion, sale, holding, repurchase and transfer of the Zegna Special Voting Shares and certain aspects of the registration of the Ordinary Shares in the Loyalty Register.

U.S. GAAP” means United States generally accepted accounting principles.

Warrant Agreement” means the Warrant Agreement, dated as of November 23, 2020, between IIAC and Continental Stock Transfer & Trust Company, as subsequently amended by the Warrant Agreement Amendment and the Warrant Assumption and Amendment Agreement.

Warrant Agreement Amendment” means the Warrant Agreement Amendment, entered into immediately prior to the Effective Time, by and between IIAC and Continental Stock Transfer & Trust Company.

Warrant Assumption and Amendment Agreement” means the Warrant Assumption and Amendment Agreement, entered into concurrently with the Closing, by and among IIAC, Zegna, Continental Stock Transfer & Trust Company, Computershare Trust Company, N.A. and Computershare Inc.

Warrants” means, collectively, the Public Warrants and the Private Placement Warrants.

Zegna” means, following the Conversion, Ermenegildo Zegna N.V., a Dutch public limited liability company (naamloze vennootschap), and, prior to the Conversion, Ermenegildo Zegna Holditalia S.p.A., a joint stock company incorporated under Italian law, in each case together with its consolidated subsidiaries, or any one or more of them, as the context may require.

Zegna Annual Consolidated Financial Statements” means the audited consolidated financial statements of Ermenegildo Zegna Holditalia S.p.A. as of December 31, 2020 and 2019 and for each of the three years in the period ended December 31, 2020, prepared in accordance with IFRS, together with the notes thereto.

Zegna Articles of Association” means the articles of association of Zegna.

Zegna Board” means Zegna’s board of directors.

Zegna Director” means a Zegna Executive Director or a Zegna Non-Executive Director.

Zegna Executive Director” means an executive member of the Zegna Board.

Zegna General Meeting” means the corporate body that consists of the shareholders of Zegna and all other Persons with meeting rights and also the meeting in which shareholders of Zegna and all other Persons with meeting rights assemble, as the case may be.

Zegna Interim Condensed Consolidated Financial Statements” means the unaudited interim condensed consolidated financial statements of Ermenegildo Zegna Holditalia S.p.A. as of June 30, 2021 and for the six months ended June 30, 2021 and 2020, prepared in accordance with IAS 34—Interim Financial Reporting, together with the notes thereto.

Zegna Merger Sub” means EZ Cayman, a Cayman Islands exempted company.

Zegna Non-Executive Director” means a non-executive member of the Zegna Board.

 

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Zegna Shareholders” means, collectively, Monterubello, Ermenegildo Zegna and the other shareholders of Zegna immediately prior to the Closing.

Zegna Shareholders Lock-Up Agreement” means the lock-up agreement, entered into at the Closing, by and among Zegna and the Zegna Shareholders.

Zegna Special Voting Shares” means, collectively, the Zegna Special Voting Shares A, the Zegna Special Voting Shares B and the Zegna Special Voting Shares C.

Zegna Special Voting Shares A” means the special voting shares class A, nominal value of €0.02 per share, of Zegna.

Zegna Special Voting Shares B” means the special voting shares class B, nominal value of €0.08 per share, of Zegna.

Zegna Special Voting Shares C” means the special voting shares class C, nominal value of €0.18 per share, of Zegna.

Sponsor Nominee” means the Zegna Non-Executive Director to be nominated by the IIAC Sponsor in accordance with the Zegna Articles of Association.

IMPORTANT INFORMATION ABOUT IFRS AND NON-IFRS FINANCIAL MEASURES

The audited financial statements of Ermenegildo Zegna Holditalia S.p.A. (which changed its name to Ermenegildo Zegna N.V. in connection with the Conversion) are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. This prospectus includes certain references to financial measures that were not prepared in accordance with IFRS, including Adjusted EBIT, Adjusted EBITDA, Net Financial Indebtedness and Trade Working Capital. The presentation of this non-IFRS information is not meant to be considered in isolation or as a substitute for our consolidated financial statements prepared in accordance with IFRS.

CONVENTIONS THAT APPLY TO THIS PROSPECTUS

In this prospectus, unless otherwise specified or the context otherwise requires:

 

   

“$,” “USD” and “U.S. dollar” each refer to the United States dollar, the currency of the United States of America; and

 

   

“€,” “EUR” and “Euro” each refer to the Euro, the currency issued by the European Central Bank.

TRADEMARKS, SERVICE MARKS AND TRADE NAMES

This prospectus includes trademarks, tradenames and service marks, certain of which belong to Zegna and others that are the property of other organizations. Solely for convenience, some of the trademarks, service marks, logos and trade names referred to in this prospectus are presented without the ® and symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks and trade names. This prospectus contains additional trademarks, service marks and trade names of others. All trademarks, service marks and trade names appearing in prospectus are, to our knowledge, the property of their respective owners. We do not intend our use or display of other companies’ trademarks, service marks, copyrights or trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

 

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MARKET AND INDUSTRY INFORMATION

Information contained in this prospectus concerning the market and the industry in which we compete, including its market position, general expectations of market opportunity and market size, is based on information from various third-party sources, assumptions made by us based on such sources and our knowledge of the personal luxury goods market. This information and any estimates provided herein involve numerous assumptions and limitations, and you are cautioned not to give undue weight to such information. Third-party sources generally state that the information contained in such source has been obtained from sources believed to be reliable but that there can be no assurance as to the accuracy or completeness of such information. We have not independently verified any third-party information. The industry in which we operate is subject to a high degree of uncertainty and risk. As a result, the estimates and market and industry information provided in this prospectus are subject to change based on various factors, including those described in the sections entitled “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” and elsewhere in this prospectus. The information relating to the industry contained in the section entitled “Business—Industry,” unless otherwise indicated, has been based on the Bain-Altagamma Luxury Goods Worldwide Market Study, Fall 2021, dated November 11, 2021.

 

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PROSPECTUS SUMMARY

This summary highlights certain information about us, this offering and selected information contained elsewhere in this prospectus. This summary is not complete and does not contain all of the information that you should consider before deciding whether to invest in the securities covered by this prospectus. For a more complete understanding of our Company and this offering, we encourage you to read and consider carefully the more detailed information in this prospectus, and any related prospectus supplement, including the information set forth in the section titled “Risk Factors” in this prospectus and any related prospectus supplement in their entirety before making an investment decision.

Our Company

Zegna is a Dutch public limited liability company (naamloze vennootschap).

We are a leading global luxury group, internationally recognized for the distinctive heritage of craftsmanship, quality and design associated with our Zegna and Thom Browne brands and the noble fabrics and fibers of our in-house luxury textile and knitwear business. Since our foundation in 1910, we have expanded beyond our luxury textile production to ready-to-wear products and accessories to become a highly recognized luxury lifestyle group. We design, manufacture, market and distribute luxury menswear, footwear, leather goods and other accessories under the Zegna and the Thom Browne brands, and luxury womenswear and childrenswear under the Thom Browne brand. Our product range is complemented by eyewear, cufflinks and jewelry, watches, underwear and beachwear manufactured by third parties under licenses. Our business covers the entire value chain as a result of our design, manufacturing and distribution business. Our goal is to provide customers with excellent products that reflect our tradition of fine craftsmanship with exclusive design content and with a style that preserves the exceptional manufacturing quality we are known for, through the sourcing of superior raw materials, the careful finish of each piece, and the way they are delivered to our customers.

In 2020, 2019 and 2018, we recorded revenues of €1,014,733 thousand, €1,321,327 thousand and €1,182,563 thousand, respectively, (Loss)/profit for the year of (€46,540) thousand, €25,439 thousand, and €40,514 thousand, respectively and Adjusted EBIT of €20,013 thousand, €107,274 thousand and €105,268 thousand, respectively. For the six months ended June 30, 2021 and 2020, we recorded revenues of €603,340 thousand and €402,386 thousand, respectively, Profit/(loss) for the period of €32,234 thousand and (€87,755) thousand, respectively, and Adjusted EBIT of €66,813 thousand and (€51,981) thousand, respectively. For additional information regarding Adjusted EBIT, which is a non-IFRS measure, including a reconciliation of Adjusted EBIT to profit/(loss), see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-IFRS Financial Measures—Adjusted EBIT.”

The mailing address of our principal executive office is Viale Roma 99/100, 13835 Valdilana loc. Trivero, Italy and its telephone number is +39 01575911. Our agent for U.S. federal securities law purposes is Vincenzo Roberto, c/o Ermenegildo Zegna Corporation, 7th Floor, 10 East 53rd Street, New York, NY, 10022. We also maintain a website at https://ir.zegnagroup.com.

Recent Developments

Closing of the Business Combination

On the Closing Date, we closed the previously announced Business Combination pursuant to the Business Combination Agreement, by and among us, IIAC and Zegna Merger Sub. In connection with the Business Combination, the following transactions occurred pursuant to the terms of the Business Combination Agreement:

 

   

on the Closing Date prior to the Effective Time, Zegna implemented the Conversion and became a Dutch public limited liability company (naamloze vennootschap), upon which Ermenegildo Zegna Holditalia S.p.A. changed its name to Ermenegildo Zegna N.V.;

 

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in connection with the Conversion, Zegna underwent a share split such that immediately following the Closing (including the Share Repurchase) the then-existing shareholders of Zegna would hold 155,400,000 Ordinary Shares (excluding any Ordinary Shares purchased in connection with the PIPE Financing);

 

   

on the Closing Date following the Conversion and prior to the Effective Time, the FPA Purchaser purchased from IIAC and IIAC issued to such purchaser 22,500,000 Class A Shares for an aggregate purchase price of €191.8 million ($227.9 million at the Balance Sheet Exchange Rate);

 

   

immediately following the consummation of the Forward Purchase, at the Effective Time, Zegna Merger Sub merged with and into IIAC, with IIAC being the Surviving Company in the Merger;

 

   

in connection with the Merger, (i) each share in the capital of Zegna Merger Sub issued and outstanding immediately prior to the Effective Time was automatically cancelled and extinguished and converted into one ordinary share in the share capital of the Surviving Company, (ii) each Class A Share and Class B Share of IIAC issued and outstanding immediately prior to the Effective Time (excluding shares tendered for redemption) remained outstanding as one ordinary share of the Surviving Company for further contribution as a contribution in kind, immediately following the Effective Time, to Zegna in consideration for one Ordinary Share, (iii) each IIAC Ordinary Share held immediately prior to the Effective Time by IIAC as treasury shares was cancelled, and no consideration was paid with respect thereto, (iv) each outstanding IIAC Public Warrant automatically ceased to represent a right to acquire one Class A Share and automatically was converted and represented, at the Effective Time, a right to acquire one Ordinary Share on the same contractual terms and conditions as were in effect immediately prior to the Effective Time under the terms of the Warrant Agreement, and (v) 5,900,000 IIAC Private Placement Warrants that were outstanding immediately prior to the Effective Time were exchanged, at the Effective Time, for the issuance by Zegna of a Private Placement Warrant representing a right to acquire one Ordinary Share on the same contractual terms and conditions as those of the IIAC Private Placement Warrants as were in effect immediately prior to the Warrant Agreement Amendment, while the remaining 800,000 IIAC Private Placement Warrants were transferred by the FPA Purchaser to Zegna pursuant to the Business Combination Agreement, and Zegna issued a corresponding number of Private Placement Warrants to certain of its directors, namely the directors who were members of the Zegna Board prior to the Conversion, the Lead Non-Executive Director and the chairperson of the Audit Committee;

 

   

immediately following the Effective Time, Zegna consummated the PIPE Financing and the Offset PIPE Financing;

 

   

after the consummation of the PIPE Financing and the Offset PIPE Financing, the Surviving Company distributed an amount of cash equal to the Capital Distribution Amount to Zegna by way of the Capital Distribution; and

 

   

promptly following the Capital Distribution, Zegna completed the Share Repurchase, acquiring 54,600,000 Ordinary Shares from Monterubello in exchange for a promissory note in the amount of the Cash Consideration.

The Ordinary Shares and the Public Warrants began trading on NYSE under the symbols “ZGN” and “ZGN WS”, respectively, on December 20, 2021.

PIPE Financing and Offset PIPE Financing

Concurrently with the execution of the Business Combination Agreement, IIAC and Zegna entered into the PIPE Subscription Agreements with the PIPE Investors, pursuant to which the PIPE Investors, on the Closing Date, subscribed for and purchased an aggregate of 25 million Ordinary Shares at $10.00 per share for an

 

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aggregate purchase price of $250,000,000, of which $6,200,000 funded by the FPA Purchaser, an affiliate of the IIAC Sponsor, $1,200,000 funded by Sergio P. Ermotti, the chairman of the board of directors of IIAC, and $3,600,000 funded by Ermenegildo Zegna di Monte Rubello.

On December 3, 2021, IIAC, Zegna and the Offset PIPE Investors entered into the Redemption Offset Agreements, pursuant to which the Offset PIPE Investors agreed to subscribe for Ordinary Shares at the Closing to offset redemptions of Class A Shares by IIAC public shareholders up to a certain level if the redemptions exceeded the Redemption Threshold Amount (as defined in each Redemption Offset Agreement). On December 16, 2021, IIAC and Zegna determined that the amount required to be released from the trust account of IIAC as a result of redemptions by the public shareholders of IIAC exceeded the Redemption Threshold Amount. Shortly thereafter, Zegna, IIAC and the Offset PIPE Investors entered into the Offset Subscription Agreements pursuant to which, on the Closing Date, they subscribed for and purchased (each pro rata to their maximum committed amount) an aggregate number of 12,500,000 Ordinary Shares at the price of $10.00 per share for an aggregate purchase price of $125,000,000, of which $28,700,000 funded by the FPA Purchaser, an affiliate of the IIAC Sponsor.

The Ordinary Shares issued pursuant to the PIPE Subscription Agreements and the Offset Subscription Agreements were issued in a private placement not registered under the Securities Act. Zegna agreed to grant the PIPE Investors and Offset PIPE Investors certain registration rights in connection with the PIPE Financing and the Offset PIPE Financing.

Implications of Being a Foreign Private Issuer

We are considered a “foreign private issuer” subject to reporting requirements under the Exchange Act, as a non-U.S. company with foreign private issuer status. As a “foreign private issuer,” we will be subject to different U.S. securities laws than U.S. domestic issuers. The rules governing the information that we must disclose differ from those governing U.S. corporations pursuant to the Exchange Act. This means that, as long as we qualify as a foreign private issuer under the Exchange Act, we will be exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including:

 

   

the rules under the Exchange Act prescribing the furnishing and content of proxy statements to shareholders and requirements that the proxy statements conform to Schedule 14A of the proxy rules promulgated under the Exchange Act;

 

   

the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act;

 

   

the sections of the Exchange Act requiring insiders (i.e., officers, directors and holders of more than 10% of our issued and outstanding equity securities) to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time;

 

   

the rules under the Exchange Act requiring the filing with the Securities and Exchange Commission (the “SEC”) of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K, upon the occurrence of specified significant events; and

 

   

the SEC rules on disclosure of compensation on an individual basis, unless individual disclosure is required in our home country (the Netherlands) or is otherwise publicly disclosed by us.

We may take advantage of these exemptions until such time as we are no longer a foreign private issuer. We would cease to be a foreign private issuer at such time as more than 50% of our outstanding voting securities are held by U.S. residents and any of the following three circumstances applies: (i) the majority of our executive officers or directors are U.S. citizens or residents, (ii) more than 50% of our assets are located in the United States or (iii) our business is administered principally in the United States.

 

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We may choose to take advantage of some but not all of these reduced reporting requirements of which we have taken advantage of in this prospectus. Accordingly, the information contained herein may be different from the information you may receive from other companies that are U.S. domestic filers, or other U.S. domestic public companies in which you have made an investment.

Risk Factors

Investing in our securities entails a high degree of risk as more fully described in the “Risk Factors” section beginning on page 14 of this prospectus. These risks include, among others, the following:

 

   

Our business depends on the recognition, integrity and reputation of our brands and on our ability to identify and respond to new and changing customer preferences.

 

   

The COVID-19 pandemic or similar public health crises may materially and adversely affect our business.

 

   

We may not be able to successfully implement our strategy, including the successful consolidation of the shift toward luxury leisurewear, the successful design and introduction of new iconic products, the preservation of quality and the use of digital tools to strengthen business processes, attract new customers and retain the existing customer base, and growing the Thom Browne brand.

 

   

Disruptions to our manufacturing and logistics facilities, including as a result of the COVID-19 pandemic, may adversely affect our business.

 

   

The sale of our products through our DTC channel and directly operated stores is subject to certain risks, including as a result of difficulties in renewing the existing lease agreements, increases in rental charges or declines in sales, which may adversely affect our business.

 

   

In the wholesale channel, we are subject to certain risks arising from points of sale operated by third parties, and we are dependent on our local partners to sell products in certain markets.

 

   

Fluctuations in the price or quality of, or disruptions in the availability of, raw materials used in our products, could cause us to incur increased costs, disrupt our manufacturing processes or prevent or delay us from meeting our customers’ demands.

 

   

We could be adversely affected if we are unable to negotiate, maintain or renew our license agreements and strategic alliances.

 

   

Shifts in travel patterns or declines in travel volumes, including as a result of the COVID-19 pandemic, have had in the past, and may have in the future, an adverse effect on our business, results of operations and financial condition.

 

   

Changes in local economic, business, regulatory, social and political conditions, as well as changes in general economic conditions and changes in demand for luxury goods may adversely affect our business.

 

   

Disruptions or breaches compromising our information technology systems or the personal information of our customers may adversely affect our business.

 

   

We are dependent on the protection of our intellectual property rights and there can be no assurance that we will succeed in protecting such rights in the jurisdictions in which we operate.

 

   

Changes in trade policy, the imposition of tariffs, the enactment of tax reforms and other changes in laws and regulations may have an adverse effect on the demand for our products and our business.

 

   

Our business success depends on certain key personnel and on higly specialized craftmanship and skills.

 

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Corporate Information

We are incorporated as a public limited liability company (naamloze vennootschap) under the name Ermenegildo Zegna N.V.

On December 17, 2021, we implemented the Conversion upon which Ermenegildo Zegna Holditalia S.p.A., an Italian joint stock company (società per azioni), changed its name to Ermenegildo Zegna N.V., transferred its legal seat from Italy to the Netherlands and amended its articles of association.

We are registered with the Dutch Trade Register under number 84808640. Our corporate seat (statutaire zetel) is in Amsterdam, the Netherlands. Our address is Viale Roma 99/100, 13835 Valdilana loc. Trivero, Italy. Since our incorporation we have had, and intend to continue to have, our place of effective management in Italy. Our telephone number is +39 01575911.

We maintain a website at https://ir.zegnagroup.com. Our filings with the SEC are available free of charge through the website as soon as reasonably practicable after being electronically filed with or furnished to the SEC. Information contained in our website is not a part of, nor incorporated by reference into, this prospectus or our other filings with the SEC, and should not be relied upon.

 

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THE OFFERING

 

Issuer

Ermenegildo Zegna N.V.

Issuance of Ordinary Shares

 

Ordinary Shares offered by us

Up to 20,116,667 Ordinary Shares, consisting of up to to (i) 6,700,000 Ordinary Shares issuable upon the exercise of 6,700,000 Private Placement Warrants, and (ii) 13,416,667 Ordinary Shares issuable upon the exercise of 13,416,667 Public Warrants

 

Ordinary Shares outstanding prior to exercise of all Warrants

242,343,659 Ordinary Shares (as of December 17, 2021)

 

Ordinary Shares outstanding assuming exercise of all Warrants

262,460,326 Ordinary Shares, based on total shares outstanding as of December 17, 2021

 

Exercise Price of Warrants

$11.50 per share, subject to adjustments

 

Use of Proceeds

We will receive up to an aggregate of approximately $231.3 million from the exercise of the Warrants, assuming the exercise in full of all of the Warrants for cash. We expect to use the net proceeds from the exercise of the Warrants for general corporate purposes. See “Use of Proceeds.”

Resale of Ordinary Shares and Private
Placement Warrants

 

Ordinary Shares that may be offered and sold from time to time by the selling securityholders

Up to 231,802,500 Ordinary Shares, including (i) 37,140,000 Ordinary Shares issued to certain selling securityholders concurrently with the closing of the Business Combination, (ii) 187,962,500 Ordinary Shares held by certain securityholders of the Company and (iii) 6,700,000 Ordinary Shares issuable upon exercise of the Private Placement Warrants

 

Private Placement Warrants offered by the selling securityholders

Up to 6,700,000 Private Placement Warrants

 

Redemption

The Private Placement Warrants are redeemable in certain circumstances. See “Description of Securities—Warrants” for further discussion.

 

Use of proceeds

All of the Ordinary Shares and Private Placement Warrants offered by the selling securityholders pursuant to this prospectus will be sold by the selling securityholders for their respective accounts. We will not receive any of the proceeds from such sales.

 

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SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION

The following tables show our summary historical financial information for the periods and as of the dates indicated.

Our summary historical financial information as of December 31, 2020 and 2019 and January 1, 2019 and for each of the three years in the period ended December 31, 2020 was derived from the Zegna Annual Consolidated Financial Statements included elsewhere in this prospectus, which have been restated as discussed in Note 43 thereof.

Our summary historical financial information as of June 30, 2021 and for the six months ended June 30, 2021 and June 30, 2020 was derived from the Zegna Interim Condensed Consolidated Financial Statements included elsewhere in this prospectus.

The following summary historical financial information should be read together with the Zegna Annual Consolidated Financial Statements, the Zegna Interim Condensed Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this prospectus. The financial summary historical financial information in this section is not intended to replace our consolidated financial statements and the related notes. Our historical results are not necessarily indicative of Zegna’s future results.

The financial information contained in this section relates to us prior to and without giving pro forma effect to the impact of the Business Combination and, as a result, the results reflected in this section may not be indicative of the results of the combined entity going forward. See the sections entitled “Business” and “Unaudited Pro Forma Condensed Combined Financial Information” included elsewhere in this prospectus.

 

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Consolidated Statement of Profit and Loss Data

 

     Restated  
     For the years ended December 31,  
(Euro thousands)    2020      2019      2018  
     Restated      Restated      Restated  

Revenues

     1,014,733        1,321,327        1,182,563  

Other income

     5,373        7,873        6,392  

Cost of raw materials and consumables

     (250,569      (309,801      (209,122

Purchased, outsourced and other costs

     (286,926      (371,697      (366,879

Personnel costs

     (282,659      (331,944      (320,662

Depreciation, amortization and impairment of assets

     (185,930      (177,068      (160,588

Write downs and other provisions

     (6,178      (1,017      725  

Other operating costs

     (30,399      (49,034      (37,628
  

 

 

    

 

 

    

 

 

 

Operating (Loss)/Profit

     (22,555      88,639        94,801  

Financial income

     34,352        22,061        23,220  

Financial expenses

     (48,072      (37,492      (45,196

Exchange gains/(losses)

     13,455        (2,441      1,040  

Result from investments accounted for using the equity method

     (4,205      (1,534      (1,056

Impairments of investments accounted for using the equity method

     (4,532      —          (2,900
  

 

 

    

 

 

    

 

 

 

(Loss)/Profit before taxes

     (31,557      69,233        69,909  

Income taxes

     (14,983      (43,794      (29,395
  

 

 

    

 

 

    

 

 

 

(Loss)/Profit for the year

     (46,540      25,439        40,514  

Attributable to:

        

Shareholders of the parent company

     (50,577      21,749        37,714  

Non-controlling interests

     4,037        3,690        2,800  

Earnings per share in Euro—Basic and diluted

     (12.55      5.40        9.37  

Weighted average number of shares outstanding—Basic and diluted

     4,029,782        4,031,222        4,025,536  

 

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     For the six months ended
June 30,
 
(Euro thousands)    2021      2020  

Revenues

     603,340        402,386  

Other income

     5,367        5,177  

Cost of raw materials and consumables

     (161,298      (104,030

Purchased, outsourced and other costs

     (138,019      (117,622

Personnel costs

     (160,201      (139,771

Depreciation, amortization and impairment of assets

     (78,605      (89,043

(Write downs)/Reversal of write downs and other provisions

     (3,174      1,812  

Other operating costs

     (15,664      (20,140
  

 

 

    

 

 

 

Operating Profit/(Loss)

     51,746        (61,231

Financial income

     32,531        13,388  

Financial expenses

     (16,685      (24,105

Exchange losses

     (2,728      (3,190

Result from investments accounted for using the equity method

     (346      (3,286

Impairments of investments accounted for using the equity method

     —          (3,681
  

 

 

    

 

 

 

Profit/(Loss) before taxes

     64,518        (82,105

Income taxes

     (32,284      (5,650
  

 

 

    

 

 

 

Profit/(Loss) for the period

     32,234        (87,755

Attributable to:

     

Shareholders of the Parent Company

     28,157        (86,707

Non-controlling interests

     4,077        (1,048

Basic earnings per share in Euro

     6.98        (21.51

Diluted earnings per share in Euro

     6.95        (21.51

Basic weighted average number of shares outstanding

     4,031,611        4,030,986  

Diluted weighted average number of shares outstanding

     4,050,302        4,030,986  

 

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Consolidated Statement of Financial Position Data

 

     Restated  
     At December 31,      At January 1,  
(Euro thousands)    2020      2019      2019  
     Restated      Restated      Restated  

Assets

        

Total non-current assets

     1,175,898        1,392,772        1,419,144  

Total current assets

     1,239,156        1,246,625        1,374,848  

Total assets

     2,415,054        2,639,397        2,793,992  
  

 

 

    

 

 

    

 

 

 

Liabilities and Equity

        

Share capital

     4,300        4,300        4,300  

Retained earnings

     893,236        944,489        936,555  

Other reserves

     (295,772      (260,017      (249,578

Equity attributable to non-controlling interest

     43,270        40,982        34,210  

Total equity

     645,034        729,754        725,487  
  

 

 

    

 

 

    

 

 

 

Total non-current liabilities

     1,234,566        1,302,265        1,419,972  
  

 

 

    

 

 

    

 

 

 

Total current liabilities

     535,454        607,378        648,533  

Total equity and liabilities

     2,415,054        2,639,397        2,793,992  
  

 

 

    

 

 

    

 

 

 

 

(Euro thousands)    At June 30, 2021  

Assets

  

Total non-current assets

     972,293  

Total current assets

     1,496,211  
  

 

 

 

Total assets

     2,468,504  

Liabilities and Equity

  

Share capital

     4,300  

Retained earnings

     925,475  

Other reserves

     (270,384

Equity attributable to non-controlling interest

     44,289  
  

 

 

 

Total equity

     703,680  

Total non-current liabilities

     1,129,469  

Total current liabilities

     635,355  
  

 

 

 

Total equity and liabilities

     2,468,504  

 

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Consolidated Cash Flow Statement

 

     Restated  
     For the years ended December 31,  
(Euro thousands)    2020      2019      2018  
     Restated      Restated      Restated  

Net cash flows from operating activities

     70,906        174,122        192,765  

Net cash flows from/(used in) investing activities

     92,572        83,961        (334,546

Net cash flows (used in)/from financing activities

     (49,052      (267,486      131,868  

Net increase/(decrease) in cash and cash equivalents

     106,665        (7,705      (10,275

Cash and cash equivalents at the beginning of the year

     210,626        218,331        228,606  

Cash and cash equivalents at the end of the year

     317,291        210,626        218,331  

 

     For the six months
ended June 30,
 
(Euro thousands)    2021      2020  

Net cash flows from/(used in) operating activities

     90,871        (64,394

Net cash flows (used in)/from investing activities

     (89,286      61,855  

Net cash flows (used in)/from financing activities

     (27,882      13,910  

Net (decrease)/increase in cash and cash equivalents

     (23,534      9,975  

Cash and cash equivalents at the beginning of the period

     317,291        210,626  

Cash and cash equivalents at end of the period

     285,937        220,601  

 

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SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following unaudited pro forma condensed combined statement of financial position as of June 30, 2021 combines the historical statement of financial position of IIAC as of June 30, 2021 with the historical consolidated statement of financial position of Zegna as of June 30, 2021, giving pro forma effect to the Business Combination and the PIPE Financing, as if they had occurred as of June 30, 2021.

The following unaudited pro forma condensed combined statement of profit and loss for the six months ended June 30, 2021 combines the historical statement of operations of IIAC for the six months ended June 30, 2021, and the historical consolidated statements of operations of Zegna for the six months ended June 30, 2021, giving pro forma effect to the Business Combination and the PIPE Financing as if they had occurred on January 1, 2020, the beginning of the earliest period presented in this document.

 

(in thousands, except share and per share data)

  

Summary Unaudited Pro Forma Condensed Combined

  

Statement of Operations Data Six Months Ended June 30, 2021

  

Revenue

   603,645  

Net Income attributable to Parent

   30,916  

Basic weighted average shares outstanding

     237,312,409  

Basic earnings per share

   0.13  

Diluted weighted average shares outstanding

     238,246,959  

Diluted earnings per share

   0.13  

 

(in thousands, except share and per share data)

  

Summary Unaudited Pro Forma Condensed Combined

  

Balance Sheet Data as of June 30, 2021

  

Total assets

   2,372,500  

Total liabilities

   1,807,717  

Total equity

   564,783  

 

(in thousands, except share and per share data)

  

Summary Unaudited Pro Forma Condensed Combined

  

Statement of Operations Data Year Ended December 31, 2020

  

Revenue

   1,004,928  

Net loss attributable to Parent

   (182,815

Weighted average shares outstanding – basic and diluted

     237,312,409  

Loss per share – basic and diluted

   (0.77

The historical financial statements of Zegna have been prepared in accordance with IFRS as issued by the IASB and in its presentation and reporting currency of the Euro. The historical financial statements of IIAC have been prepared in accordance with U.S. GAAP in its presentation and reporting currency of United States dollars. The financial statements of IIAC have been translated into Euros for the purposes of presentation in the unaudited pro forma condensed combined financial information using the following exchange rates (see Note 3—IFRS Policy and Presentation Alignment):

 

   

at the period end exchange rate as of June 30, 2021 of $1.00 to €0.8415 for the statement of financial position;

 

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at the average exchange rate for the period from January 1, 2021 through June 30, 2021 of $1.00 to €0.8297 for the statement of profit and loss for the six months ended June 30, 2021; and

 

   

at the average exchange rate for the period from September 7, 2020 (inception) through December 31, 2020 of $1.00 to €0.8410 for the statement of profit and loss for the year ended December 31, 2020

This information should be read together with the consolidated financial statements of Zegna as of and for the year ended December 31, 2020 and its related notes and the unaudited condensed consolidated financial statements as of and for the six months ended June 30, 2021 and its related notes and the consolidated financial statements of IIAC as of and for the year ended December 31, 2020 and its related notes and the unaudited condensed consolidated financial statements as of and for the six months ended June 30, 2021 and its related notes, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other financial information included elsewhere in this prospectus or as filed on Form 10-Q/A by IIAC on November 23, 2021, as applicable.

The summary unaudited pro forma condensed combined financial information is presented for illustrative purposes only. Such information is only a summary and should be read in conjunction with the section titled “Unaudited Pro Forma Condensed Combined Financial Information.” The financial results could have been different had the companies been combined for the referenced period. The unaudited pro forma condensed combined financial information should not be relied on as being indicative of the historical results that would have been achieved had the companies been combined for the referenced period or the future results that the combined company will experience. Zegna and IIAC have not had any historical relationship prior to the Business Combination. Accordingly, no pro forma adjustments were required to eliminate activities between the companies.

 

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RISK FACTORS

Investing in our securities involves a high degree of risk. In addition to the other information set forth in this prospectus, you should carefully consider the risk factors discussed below when considering an investment in our ordinary shares and any risk factors and other information that may be set forth in the applicable prospectus supplement and any related free writing prospectus. If any of the following risks occur, our business, financial condition, results of operations and prospects could be materially and adversely affected. In that case, the market price of our securities could decline and you could lose some or all of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.

Risk factors relating to Zegna’s business, strategy and operations

Our business depends on the recognition, integrity and reputation of our brands.

We design, manufacture, promote and sell luxury goods under a number of brands, including Ermenegildo Zegna, Z Zegna, Ermenegildo Zegna XXX and Thom Browne. Our sales and our ability to achieve premium pricing depend on the perception, recognition and reputation of our brands, which, in turn, depend on factors such as product design, the distinctive character and the quality of our products and customer service, the image of our stores and those of our franchisees and other wholesale customers, the success of our advertising and communication activities and our general corporate profile.

The recognition, integrity and reputation of our brands are among our most valuable assets, which are influenced by several factors, some of which are outside of our control. Factors that may adversely affect our brands’ image include our inability to respond adequately to the needs and expectations of our customers with regard to the quality, style and design of our products, the dissemination by third parties of information that is untrue or defamatory, the commencement of litigation proceedings against us, as well as factors attributable to the parallel distribution and counterfeiting of our products. Each of these factors could harm the recognition, integrity and reputation of our brands, causing us to lose existing customers or fail to attract new customers, or otherwise having a material adverse effect on our business, results of operations and financial condition.

Our reputation may also suffer as a result of facts depending on our suppliers. While we closely monitor our suppliers to ensure that they comply with all applicable laws and regulations, if suppliers fail to comply with applicable law, including those relating to labor, social security, health and safety, or if they deliver products that are defective or differ from our specifications or quality standards or do not comply with applicable law, this could have adverse effects on our production cycle and cause delays in product deliveries to our customers, which in turn could damage our reputation, with possible adverse effects on our business, results of operations and financial condition.

Our success depends on our ability to anticipate trends and to identify and respond to new and changing consumer preferences.

Our continued success depends in part on our ability to set and define product and fashion trends, and in part on our ability to identify and respond to changing consumer preferences in a timely manner. Our products must appeal to an evolving customer base whose preferences cannot be predicted with certainty and are subject to increasingly rapid change, while preserving the image and recognition of our brands. Although we dedicate considerable resources to market analysis and the identification of new fashion trends, we may not be able to promptly anticipate fashion trends or to quickly adapt to these trends during the design and manufacturing stages. If we fail to identify or promptly respond to new trends or changing consumer preferences, our brands’ reputation may be affected, which could result in unsold products or a decline in sales to customers and could have a material adverse effect on our business, results of operations and financial condition.

 

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We are subject to risks related to the COVID-19 pandemic or similar public health crises that may materially and adversely affect our business.

Public health crises such as pandemics or similar outbreaks could adversely impact our business. The global spread of COVID-19, including more recently the highly transmissible Delta and Omicron variants thereof, led to governments around the world mandating increasingly restrictive measures to contain the pandemic, including quarantine, social distancing, “shelter in place” or similar orders, travel restrictions and suspension of non-essential business activities. The COVID-19 pandemic has caused significant disruption to the global economy, consumer spending and behavior, tourism, supply chains and financial markets, leading to a global economic slowdown and a severe recession in several of the markets in which we operate, which may persist even after all restrictions are lifted.

From mid-March 2020 we temporarily suspended production at all of our manufacturing and logistics facilities in Italy, Switzerland, Turkey and Spain. While starting from the mid-second quarter of 2020 we were able to resume manufacturing activities, both our DOSs and our distribution partners’ stores in many places around the world were subject to temporary closures in 2020 and 2021 pursuant to local emergency regulations, with an adverse impact on our sales. In connection with the COVID-19 pandemic and related government measures, we experienced delays in deliveries of raw materials from suppliers and of our products to wholesale customers, as well as running costs related to our workforce, despite furlough or reduced hours schemes we implemented with respect to certain of our employees. At the reopening of our manufacturing and logistics facilities in Italy and Switzerland, we introduced measures and protocols to safeguard the health and safety of our workforce in accordance with local laws. For further information on the impact of the COVID-19 pandemic on our results of operations and liquidity, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Factors Affecting Zegna’s Financial Condition and Results of Operations.” While we continued to serve our customers through our remote selling and online e-commerce websites during the periods in which our DOSs were closed, the store closures resulted in a significant decline in our revenues and ability to generate cash flows from operations. The COVID-19 pandemic has also resulted in a decline in the level of consumer purchases of discretionary items and luxury retail products, including our products, caused by lower disposable income levels, travel restrictions, the prevalence of remote working arrangements and other factors. As a result of store closures and lower consumer demand, including those resulting from changes in consumer traffic and shopping preferences, we experienced a build-up of inventory.

While the overall COVID-19 situation appears to have improved in countries that have rolled out vaccination campaigns, our business and operating results may be negatively impacted if the virus worsens or mutates, if vaccination efforts are unsuccessful or if regions or countries implement further restrictions to contain the virus. We may experience a new shutdown or slowdown of all or part of our manufacturing and logistics facilities, and of our stores. Management time and resources were required to be, and in the future may need to be, spent on COVID-19 related matters, distracting them from the implementation of our strategy. In addition, the prophylactic measures we are required to adopt at our facilities may be costly and may affect production levels.

Our suppliers, customers and other contractual counterparties may be restricted or prevented from conducting business activities for indefinite or intermittent periods of time. The COVID-19 pandemic may lead to financial distress for our suppliers or wholesale customers, as a result of which they may have to permanently discontinue or substantially reduce their operations. Any of the foregoing could disrupt our supply chain and/or limit customer demand or our capacity to meet customer demand and have a material adverse effect on our business, results of operations and financial condition.

The impact of the COVID-19 pandemic (including recent and potential future COVID-19 variants such as the highly transmissible Delta and Omicron) on our business, results of operations and financial condition will depend largely on future events outside of our control, including ongoing developments in the pandemic, the success of containment measures, vaccination campaigns and other actions taken by governments around the

 

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world, as well as the overall condition and outlook of the global economy. However, the effects on our business, results of operations and financial condition may be material and adverse.

The COVID-19 pandemic may also exacerbate other risks disclosed in this “Risk Factors” section, including, but not limited to, our competitiveness, demand for our products, shifting consumer preferences, exchange rate fluctuations, and availability and price of raw materials.

We operate in many countries around the world and, accordingly, we are exposed to various international business, regulatory, social and political risks.

We operate in about 80 countries worldwide through a direct and indirect distribution network. For the year ended December 31, 2020, 54% of our revenues were generated in APAC, 31% were generated in EMEA, 13% were generated in North America and 1% were generated in Latin America.

Our operations in various international markets expose us to various risks, including those arising from: competition with local competitors (which may have greater resources and/or more favorable market positions); the diversity of consumers’ tastes and preferences and our ability to anticipate or respond to such tastes and preferences; changes in the political and economic environments in the countries where we operate; changes in regulations, including tax regulations, and the imposition of new duties or other protectionist measures; strict regulations affecting the import and processing of certain raw materials and finished goods; the occurrence of acts of terrorism or similar events, conflicts, civil unrest or situations of political instability; parallel imports of goods at terms inconsistent with our guidelines and distribution of our products, in violation of exclusive territorial rights granted to other importers and licensees (the so-called “gray market”). These or other factors may harm our business in international markets or cause us to incur significant costs in these markets, which could have a material adverse effect on our business, results of operations and financial condition.

Developments in Greater China and other growth and emerging markets may adversely affect our business.

We operate in a number of growth and emerging markets, both directly and through our distribution partners. In particular, a significant proportion of our sales are in the Greater China Region (which for Zegna’s reporting purposes includes the Chinese mainland, Hong Kong S.A.R., Macau S.A.R. and Taiwan) (representing 43% and 35% of our revenue in 2020 and 2019, respectively), where we have had a direct retail presence since 1991. While demand in these markets has increased in recent years due to sustained economic growth and growth in personal income and wealth, economic growth in these markets may not be sustained in the future. For example, rising geopolitical tensions and potential slowdowns in the rate of growth there and in other emerging markets could cause a decline in our sales there, or limit the opportunity for us to increase sales of our products and revenues in those regions in the near term.

Economic and political developments in emerging markets, including economic crises or political instability, have had and could have in the future material adverse effects on our business, results of operations and financial condition. Government actions may also impact the market for luxury goods in these markets, such as tax changes or the active discouragement of luxury purchases. Consumer spending habits in these markets may also change due to other factors that are outside of our control. For instance, at the end of August 2021, the President of the People’s Republic of China signalled the government’s intention to regulate excessively high incomes and encourage high-income groups and enterprises to return more to society. While no regulatory action has been taken to date, similar statements by governmental authorities may affect the social acceptability of spending on luxury goods.

Maintaining our position in these growth and emerging markets is a key component of our global strategy. However, initiatives from several global luxury goods manufacturers have increased competitive pressures for luxury goods in several emerging markets. As these markets continue to grow, we anticipate that additional competitors, both international and domestic, will seek to enter these markets and that existing market

 

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participants will try to aggressively protect or increase their sales. Increased competition may result in pricing pressure, reduced margins and our inability to increase or maintain our sales levels, which could have a material adverse effect on our results of operations and financial condition. See also “—Risk factors relating to the industry in which Zegna operates—The markets in which we operate are highly competitive.

Failure to implement our strategy could adversely affect our results of operations.

Our ability to increase our revenues and pursue growth and development objectives depends, in part, upon our success in carrying out our strategic plan. As part of our strategy, we are pursuing, among other things, the successful consolidation of our shift toward luxury leisurewear, the successful design and introduction of new iconic products, the preservation of the exceptional quality we are known for and the use of digital tools to strengthen our processes, attract new customers and retain our existing customer base, and the growth of the Thom Browne brand, which depends on the brand’s positive momentum and successful customer proposition. See “Business—Strategy.” Our strategy is premised upon certain assumptions about the global economy and the evolution of demand for luxury goods in various regions of the world in which we operate or seek to operate our competitive position ant the ability of our management team to carry out our strategic plan. If we fail to implement our strategic plan or if our assumptions prove to be incorrect, our ability to increase our revenues and profitability could be affected, which could have a material adverse effect on our business, results of operations and financial condition.

We depend on our manufacturing and logistics facilities, which are subject to disruption.

We operate manufacturing and logistics facilities in Italy, Switzerland, Turkey and Spain and logistics facilities in the People’s Republic of China and the United States. These facilities are subject to operational risks, including mechanical and information technology system failure, work stoppage, civil unrest, increases in transportation costs, natural disasters, fire, government imposed shutdowns and disruption to supplies of raw materials. Any interruption of activity in our manufacturing or logistics facilities due to these or other similar events outside of our control could result in disruption to our operations and a reduction in sales, which could have an adverse effect on our business, results of operations and financial condition. See “—We are subject to risks related to the COVID-19 pandemic or similar public health crises that may materially and adversely affect our business.

We are subject to certain risks related to the sale of our products through our DTC channel and in particular our directly operated stores.

In our distribution model, the DTC channel consists of single branded stores managed directly by us, or DOSs, outlets, concessions within department stores, as well as a directly managed online boutique and other e-commerce platforms through which we sell directly to our customers. As of December 31, 2020, we operated 255 Zegna DOSs (including 17 DOSs which were converted into a franchising in January 2021) and 38 Thom Browne DOSs. The DTC channel generated revenues of €613 million in 2020 (or 60% of our consolidated revenues in such period). The risks related to managing currently existing DOSs mainly relate to possible difficulties in renewing the existing lease agreements, an increase in rental charges and a decline in sales.

Our DOSs are all located in properties that we lease from third parties. There is significant competition among retail operators in our industry to obtain commercial spaces in prestigious locations in major cities, towns and resort destinations worldwide. Accordingly, to renew our lease agreements, we may have to compete with other operators, including those in our same industry, some of which have greater economic and financial resources than ours or otherwise more bargaining power. If we are unable to renew our lease agreements with economic terms consistent or more beneficial than those currently applicable, or if we are forced to accept rental charges which are substantially higher than the existing ones, this could have a material adverse effect on our business, results of operations and financial condition.

 

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Our DOSs have a high level of fixed costs, which affect profits from the retail channel. A reduction in sales or a decrease in revenues from the retail channel could, in light of the high level of fixed costs, have a material adverse effect on our business, results of operations and financial condition.

We analyze the performance of each of our DOSs and market trends in order to assess whether to open new DOSs (or move DOSs to a different location), renew existing leases, or close DOSs that are underperforming. If our analysis is inadequate or based on the wrong assumptions, we could select sub-optimal locations for our stores, or keep or open underperforming stores, which could have a material adverse effect on our business, results of operations and financial condition.

In addition, although we have adopted internal policies and training initiatives to ensure that the staff in our DOSs operate in a manner consistent with the image and prestige of our brands, there can be no assurance that such staff will abide by such policies or that inappropriate or illicit behavior by certain employees will not occur. If there is any allegation brought against us as a result of negligence or other impermissible conduct by our DOS staff, we may be exposed to legal or other proceedings or increased public scrutiny, which may result in substantial costs, diversion of resources and management’s attention and potential harm to our reputation.

The operations of our retail channel and DOSs are also subject to risks such as information technology system failure, work stoppage, civil unrest, natural disasters, fire and government imposed shutdowns. Any interruption of activity in our retail channel and DOSs due to these or other similar events out of our control could result in disruption to our operations and a reduction in sales, which could have an adverse effect on our business, results of operations and financial condition.

In the wholesale channel, we are subject to certain risks arising from points of sale operated by third parties, and we are dependent on our local partners to sell our products in certain markets.

In the wholesale channel, we sell our products to franchisees, specialty stores, department stores and online retailers. In the year ended December 31, 2020, revenues attributable to the wholesale channel for the Zegna Branded Products and Thom Browne amounted to €203 million (or 20% of our consolidated revenues in the same period). The loss of existing commercial relationships with our primary wholesale customers, the failure to develop new commercial relationships on economically favorable terms (or at all) or a significant decrease in wholesale channel revenues could have a material adverse effect on our business, results of operation and financial condition. In addition, any failure by retail stores not directly operated by us to manage their stores in a manner consistent with the image and prestige of our brands or in line with any agreed contractual commitments (including in terms of sale prices), or failure by online retailers to comply with consumer protection laws or provide accurate product descriptions, could damage the competitive position and image of our brand, with potential material adverse effects on our business, results of operations and financial condition. See “—Our business depends on the recognition, integrity and reputation of our brands.”

In certain of the geographic markets in which we operate, the distribution of our products is carried out, sometimes exclusively, through franchising agreements with local operators. Although we generally have not experienced significant problems in the past with such wholesale customers, the loss of one or more important commercial relationships with, or the occurrence of material disagreements with, our distribution partners or a failure to renew or develop commercial relationships on economically favorable terms (or at all) with them could have a material adverse effect on our business, results of operations and financial condition.

Our operations are also subject to the risk of insolvency of our wholesale customers. Despite our efforts to mitigate such risk, there can be no assurance that we will be able to do so successfully, and our business, results of operations and financial condition could be materially adversely affected.

 

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Fluctuations in the price or quality of, or disruptions in the availability of, raw materials used in our products could cause us to incur increased costs, disrupt our manufacturing processes or prevent or delay us from meeting our customers’ demands.

We require high quality raw materials in order to produce our products. The market price of the raw materials that we require for our production depends on many factors that are largely out of our control and which are difficult to predict. The primary raw materials we use are yarns (in particular, wool yarns), silk, cotton, linen, cashmere, fabrics and leather. The availability of wool and silk depends on unpredictable factors which are outside our control, including weather conditions in the areas where these raw materials originate (mainly Australia and New Zealand for wool and Greater China for silk), as well as diseases affecting livestock. We also use rare raw materials, such as vicuna yarns, which are only available in a very limited quantity and subject to strict export and processing regulations, which may change. Possible legislative, political and economic developments, potential social instability or the introduction of export restrictions or tariffs in the countries in which our suppliers operate, or the introduction of import restrictions on products from such countries, could have a negative impact on our procurement activities. These and other factors could affect the availability and price of the raw materials required for our production.

If the supply of such raw materials decreases (including due to shortages or to a decrease in the number of producers or suppliers of raw materials), we may face difficulties in obtaining sufficient supplies of high quality raw materials, and the relevant prices may increase. Thus, we could face supply shortages in the medium term and rising costs of purchasing. In addition, our suppliers could cancel or delay the delivery of raw materials to us, or may fail to provide raw materials that meet our high quality standards. This could delay our manufacturing process or cause us to incur increased costs to obtain raw materials of the quality we require. Any of the foregoing factors could have a material adverse effect on our business, results of operations or financial condition. Suppliers’ actions may also damage our reputation.

We could be adversely affected if we are unable to negotiate, maintain or renew our license agreements and strategic alliances.

We are a party to various strategic alliances, as licensee or supplier, and license agreements, as licensor. In particular, we have been acting as licensee for the production and distribution of Tom Ford menswear since 2008 and upon expiry of the existing license following the completion of the production and distribution activities for the Fall/Winter 2022 collection, we will act as an exclusive supplier only for certain Tom Ford products starting from the Spring/Summer 2023 season. We are also supplier of menswear for Dunhill and for Gucci. During the year ended December 31, 2020, we recorded revenues of €82 million from these strategic alliances (after eliminations). See “Business—Brands, Collections and Products—Zegna Segment—Strategic Alliances Product Line” for further information on our strategic alliances. If we were to fail to comply with our obligations under these arrangements (including with respect to required quality standards and timeliness of deliveries), our strategic alliance partners may terminate, fail to renew or amend in a manner adverse to us the existing arrangements, which may have material adverse consequences on our business, results of operations and financial condition.

We are also party to certain license agreements whereby we grant, for a certain period of time, the use of our brand to third parties for the production of products in adjacent luxury sectors (including fragrances, glasses and sunglasses, cufflinks, and beachwear and underwear). For the year ended December 31, 2020, royalties relating to these arrangements were approximately €3 million. If any of these licensees were not to perform their obligations towards Zegna (including by failing to ensure the required quality standards, comply with our directions with respect to distribution channels and after sale services), we may be unable, in a commercially reasonable time, to replace such licensee with another producer capable of ensuring equivalent quality and production standards, or procure its services upon the same or substantially the same financial terms. Our inability to maintain a presence in these adjacent luxury sectors or to provide products in these sectors of a quality comparable to that of our other products may reflect negatively on the reputation and integrity of our brands.

 

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We have also entered into co-branding projects for the production and co-marketing of certain selected co-branded products with Maserati, Leica Camera and Fear of God.

If any of the foregoing licensing agreements or strategic alliances are terminated for any reason, not renewed upon their expiration or renewed but with less favorable terms and conditions, this could have a material adverse effect on our business, results of operations and financial condition.

Our business depends on tourist traffic and demand.

A substantial amount of our sales is generated by customers who purchase products while travelling. Consequently, adverse economic conditions (such as financial crises), global political developments, other social and geopolitical sources of unrest, instability, disorders, riots, civil wars or military conflicts, natural disasters such as fire, floods, blizzards, global pandemics such as the COVID-19 pandemic and earthquakes or other events, as well as travel restrictions imposed by governments, which result in a shift in travel patterns or a decline in travel volumes, have had in the past, and may have in the future, an adverse effect on our business, results of operations and financial condition. See also “—We are subject to risks related to the COVID-19 pandemic or similar public health crises that may materially and adversely affect our business.

Our business success depends on certain key personnel.

The performance of our business depends significantly on the efforts and abilities of some key senior personnel, including our Chairperson and Chief Executive Officer, Mr. Ermenegildo Zegna. Such key personnel have substantial experience and expertise in the luxury goods business and have made significant contributions to the success of our business.

If such key personnel were to leave us abruptly, or become otherwise unable or unwilling to continue in their roles, we may not be able to replace them in a timely fashion. The failure to retain or replace such key personnel with other skilled personnel capable of integrating into our operations efficiently could lead to delays in the development of collections, inefficiencies in management of our business, and, accordingly, could have a material adverse effect on our business, results of operations and financial condition.

We depend on highly specialized craftsmanship and skills.

One of the distinguishing features of certain of our products is the highly specialized craftsmanship involved in their manufacturing, which is also a result of the experience that our specialized employees have acquired over the course of the years.

Although we try to preserve these craftsmanship skills and ensure that they are passed on to the next generations, the number of our specialized employees may decrease in the future and their craftsmanship skills may no longer be readily available. If this were to occur, it could affect our ability to ensure the distinctive quality of certain of our products in the future, which in turn could have a material adverse effect on our business, results of operations and financial condition.

We depend on the protection of our intellectual property rights.

We believe that our intellectual property is essential to the success of our products and to our competitive position. We dedicate significant resources to the protection of our intellectual property assets (including trademarks, designs, production processes and technologies, utility patents and other distinctive marks) in the jurisdictions in which we operate. There can be no assurance, however, that we will succeed in protecting our intellectual property rights.

With respect to patents in particular, patent rights do not prevent our competitors from developing products that are substantially equivalent to or better than our products, while not infringing our intellectual property

 

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rights. Moreover, any actions we take to establish and protect our patents, trademarks and other intellectual property rights may not be adequate to prevent counterfeiting, imitation of our products by competitors or other third parties or to prevent these persons from asserting rights in, or ownership of, our brand trademarks and other intellectual property rights. We may therefore be forced to spend significant resources to defend our intellectual property from infringement or from third party claims. In addition, should third parties register intellectual property rights which overlap with ours, or should we attempt to enter new markets where third parties have registered intellectual property rights which are similar to those which we would wish to register, we may be constrained from developing our business in such markets. Moreover, changes in law or adverse judicial or administrative judgments could deprive us of the ownership or use of one or more of our intellectual property rights, which could require us to grant licenses to or to obtain licenses from third parties, to pay damages or to cease production of certain merchandise benefiting from such rights. Each of the above could have a material adverse effect on our business, results of operations and financial condition.

Third parties could make claims or bring legal action against us for an alleged infringement of such third parties’ intellectual property rights. As a result, we may be required to discontinue the sale of certain products, pay damages, incur licensing costs, modify our production processes and/or products, or have the scope or validity of our intellectual property rights determined in court in order to be authorized to sell such products. For instance, on June 28, 2021 adidas commenced an action against Thom Browne, Inc. in the Southern District of New York, for, among others, trademark infringement, unfair competition, dilution and various state claims, in connection with the use of Thom Browne’s five color grosgrain ribbon and the four bands on sleeves and pants on its sporting goods, sportswear and athletic wear, allegedly infringing the three stripe marks of adidas. Thom Browne, Inc. intends to vigorously defend against the claims. This or any other such events may entail significant losses in addition to legal costs, with possible adverse effects on our business, results of operations and financial condition.

A disruption in our information technology, including as a result of cybercrimes, could compromise confidential and sensitive information.

We depend on our information technology and data processing systems to operate our business, and a significant malfunction or disruption in the operation of our systems, human error, interruption to power supply, or a security breach that compromises the confidential and sensitive information stored in those systems, could disrupt our business and adversely impact our ability to operate. Our ability to keep our business operating effectively depends on the functional and efficient operation by us and our third party service providers of our information, data processing and telecommunications systems, including our product design, manufacturing, distribution, sales and marketing, billing and payment systems. We rely on these systems to enable a number of business processes and help us make a variety of day-to-day business decisions as well as to track operations, billings, payments and inventory. Such systems are susceptible to malfunctions and interruptions due to equipment damage, power outages, connection interruption, and a range of other hardware, software and network problems. Those systems are also susceptible to cybercrime, or threats of intentional disruption, which are increasing in terms of sophistication and frequency, with the consequence that such cyber incidents may remain undetected. For any of these reasons, we may experience system malfunctions or interruptions. For example, in August 2021 we were subject to a ransomware attack that impacted the majority of our IT systems. As we refused to engage in discussions relating to the payment of the ransom, the responsible parties published certain materials extracted from our IT systems. We publicly announced the IT systems breach and gradually restored our IT systems from secure back up servers during the weeks following the breach. Although our systems are diversified, including multiple server locations, third-party cloud providers and a range of software applications for different regions and functions, and we periodically assess and implement actions to ameliorate risks to our systems, a significant or large scale malfunction or interruption of our systems could adversely affect our ability to manage and keep our operations running efficiently, and damage our reputation if we are unable to track transactions and deliver products to our customers. A malfunction that results in a wider or sustained disruption to our business could have a material adverse effect on our business, results of operations and financial condition. In addition to supporting our operations, we use our systems to collect and store confidential and sensitive data,

 

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including information about our business, our customers and our employees. Any unauthorized access to our information systems may compromise the privacy of such data and expose us to claims as well as reputational damage. Ultimately, any significant violation of the integrity of our data security could have a material adverse effect on our business, results of operations and financial condition. See “—We are exposed to the risk that personal information of our customers, employees and other parties collected in the course of our operations may be damaged, lost, stolen, divulged or processed for unauthorized purposes.” Our recently acquired businesses may use different information technology and data processing systems than those used at a broader group level; which could make it more complex to prevent or timely address any of the foregoing events.

We are exposed to the risk that personal information of our customers, employees and other parties collected in the course of our operations may be damaged, lost, stolen, divulged or processed for unauthorized purposes.

In carrying out our business, we collect, store and process personal data of our customers, employees and other parties with whom we deal, including data we gather for product development and marketing purposes. Therefore we are subject to a variety of strict and ever-changing data protection and privacy laws on a global basis, including the EU General Data Protection Regulation.

We are exposed to the risk that personal data we store and use may be damaged or lost, stolen, divulged or processed for unauthorized purposes by the individuals responsible for data management or by unauthorized individuals (including third parties and Zegna employees). The destruction, damage to or loss of personal data, as well as its theft, unauthorized processing or dissemination, could significantly impair our reputation and impact our operations; it could also lead to governmental investigations and the imposition of fines by competent authorities, with possible adverse effects on our business, results of operations and financial condition. See also “—A disruption in our information technology, including as a result of cybercrimes, could compromise confidential and sensitive information.

We are subject to certain risks related to related party transactions.

We have engaged, and continue to engage, in relationships of a commercial nature with related parties. These relationships consist mainly in the provision of industrial services, the purchase of raw materials, as well as an interest-bearing loan, and certain contributions to Fondazione Zegna. See “Certain Relationships and Related Party Transactions.” In addition, in connection with the Demerger, certain of our intercompany lease agreements for the lease of real estate properties have become related party transactions, since we continue to rent those properties from our former subsidiaries demerged prior to the closing of the Business Combination.

We believe that the terms and conditions of our transactions with related parties are at arm’s length and on commercial terms that are normal in the respective markets, considering the characteristics of the goods or services involved. However, there can be no assurance that if such transactions had been concluded between or with third parties, such parties would have negotiated or entered into agreements or carried out such transactions under the same or substantially similar terms and conditions.

We are exposed to currency related risks.

We operate in numerous markets worldwide and are exposed to market risks stemming from fluctuations in currency exchange rates. In particular, changes in exchange rates between the Euro and the main foreign currencies in which we operate affect our revenues and results of operations. The exposure to currency risk is mainly linked to the differences in geographic distribution of our sourcing and manufacturing activities from those in our commercial activities, as a result of which our cash flows from sales are denominated in currencies different from those related to purchases or production activities. In particular, we incur a large portion of our capital and operating expenses in Euro while we receive the majority of our revenues in currencies other than Euro (mainly in Chinese Renminbi, U.S. Dollars, Japanese Yen, Canadian Dollar and British Pound). Therefore, our results may be adversely affected if these currencies depreciate against the Euro. Such risk is heightened

 

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given the extended time period between the moment when the sale prices of a collection are set and the moment when revenues are converted into Euro, which may extend up to 18 months. In addition, foreign exchange fluctuations might also negatively affect the relative purchasing power of our clients, which could also have an adverse effect on our results of operations. See “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Key Factors Affecting Zegna’s Financial Condition and Results of Operations.

Exchange rate fluctuation may also adversely affect our competitive position as compared to other operators in the luxury goods market, who may incur costs in other currencies with more favorable exchange rates relative to the currencies of our principal markets.

In the Zegna segment, we have historically sought to manage risks associated with fluctuations in currency through financial hedging instruments, mainly forward contracts for the sale of foreign currencies; we are gradually implementing similar policies also in the Thom Browne segment. However, there can be no assurance that we will be able to hedge currency related risks successfully, and our business, results of operations and financial condition could nevertheless be adversely affected by fluctuations in market rates, particularly if such fluctuations are extended over time.

In addition, because the Euro is the functional currency used in our consolidated financial statements, fluctuations in exchange rates used to translate figures in our subsidiaries’ financial statements that were originally expressed in a foreign currency could have a significant impact on results, net financial indebtedness, and consolidated net shareholders’ equity as expressed in Euro in our consolidated financial statements.

We are exposed to risks relating to fluctuations in interest rates and other market risks.

We have entered into Euro-denominated financing agreements providing for a floating interest rate. As of December 31, 2020, floating rate loans represented approximately 62% of our total borrowings, other financial liabilities and derivatives and financial instruments, for a financed amount of approximately €428.8 million. Although we have entered into derivative financial instruments to hedge our exposure to interest rate risk, an increase in interest rates during the term of such financing agreements, which would result in higher interest payments thereunder, could have a material adverse effect on our business, results of operations and financial condition.

As of December 31, 2020, we had approximately €350.2 million of other current financial assets invested in listed and unlisted financial instruments. We do not enter into investments for trading or speculative purposes. The primary objective of our investment activities is to preserve principal while maximizing the income that we receive from our investments without significantly increasing risk of loss. In connection with our investment activities, we may be exposed to market risk, i.e. the risk of loss related to changes in market prices, volatility, counterparty and liquidity of financial instruments, which could have a material adverse effect on our business, results of operations and financial condition.

Risk factors relating to the industry in which Zegna operates

The markets in which we operate are highly competitive.

The markets for our products are characterized by high levels of competition and the presence of a number of established operators and new entrants, some of which have significant financial resources or well- known and fashionable brands. To succeed, we must interpret and anticipate the tastes, preferences and lifestyles of our customers and anticipate changes in those tastes, preferences and lifestyles, as well as identify fashion and luxury market trends, while producing high quality, desirable luxury products. Our competitors may be more successful in interpreting market trends or may be able to produce their products at lower costs. Our failure to compete effectively in our chosen markets, including through a failure to identify and respond to new and changing trends and consumer preferences, could have a material adverse effect on our business, results of operations and financial condition.

 

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Global economic conditions and macro events may adversely affect us.

Our sales volumes and revenues may be affected by overall general economic conditions within the different countries in which we operate. Deteriorating general economic conditions may affect disposable incomes and reduce consumer wealth impacting client demand, particularly for luxury goods, which may negatively impact our profitability and put downward pressure on our prices and volumes. Furthermore, during recessionary periods, social acceptability of luxury purchases may decrease and higher taxes may be more likely to be imposed on certain luxury goods including our products, which may affect our sales.

We sell our products throughout the world. In particular, we conduct our business in EMEA, North and Latin America and APAC. Our presence in various international markets exposes us to the risks connected, among other things, with the geopolitical and macroeconomic conditions of the countries in which we operate. Sales could be affected by various events, such as, for example, market instability, terrorism, war, natural disasters or socio-political upheavals. In particular, the majority of our current sales are in Greater China and the United States. Therefore, slowing economic conditions in those countries may adversely affect our revenues in that region. See also “—Developments in Greater China and other growth and emerging markets may adversely affect our business.

If these events, which are difficult to predict, occur, this could have an adverse effect on the demand for luxury goods in a specific country or could cause a contraction in tourist flow, and may have a material adverse effect on our business, results of operations and financial condition.

We are subject to legal and regulatory risk.

We are required to comply with the laws and regulations applying to our products and operations in the various jurisdictions in which we operate, particularly in relation to the protection of intellectual property rights, competition, product safety, packaging and labeling, import and processing of certain raw materials and finished goods, data protection, limits on cash payments, worker health and safety and the environment. New legislation (or amendments to existing legislation) may require us to adopt stricter standards, which could lead to increased costs for adapting product characteristics or limit our operations, and this may have a material adverse effect on our business, results of operations and financial condition. We are subject to the U.S. Foreign Corrupt Practices Act of 1977, as amended, and other anti-bribery, anti-corruption and anti-money laundering laws in the countries in which we conduct activities. We and our distribution partners may have direct or indirect interactions with officials and employees of government agencies or state owned or affiliated entities and other third parties where we may be held liable for corrupt or other illegal activities, even if we do not explicitly authorize them. We are also subject to sanctions legislation, which may lead to commercial and economic sanctions, prohibitions and other restrictive measures imposed by the different authorities and governments involved, including the European Union, the United States, the United Nations and other international organizations. From time to time, we may conduct some limited activities in countries subject to sanctions or other restrictive measures. While we believe that our activities are in compliance with the applicable laws and sanctions legislation, including embargoes, we cannot exclude the possibility that we or our distribution partners may violate such laws. Any violation of the foregoing laws could lead to regulatory and/or judicial proceedings and sanctions (including civil penalties, denial of export privileges, injunctions, asset seizures and revocations or restrictions of licenses, as well as criminal fines and imprisonment), which may have a material adverse effect on our reputation, business, results of operations and financial condition.

Risk factors relating to Tax Matters

Changes in tax, tariff or fiscal policies could adversely affect demand for our products.

Imposition of any additional taxes and levies on our products could adversely affect the demand for our products and our results of operations. Changes in corporate and other taxation policies as well as changes in

 

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export and other incentives given by various governments, or import or tariff policies, could also adversely affect our results of operations. Considerable uncertainty surrounds the introduction and scope of tariffs by countries around the world, as well as the potential for trade actions, and the imposition of tariffs and trade restrictions as a result of international trade disputes or changes in trade policies may adversely affect our sales and profitability. The occurrence of any the above may have a material adverse effect on our business, results of operations and financial condition.

Changes to taxation or the interpretation or application of tax laws could have an adverse impact on our results of operations and financial condition.

Our business is subject to various taxes in different jurisdictions (mainly Italy), which include, among others, the Italian corporate income tax (“IRES”), regional trade tax (“IRAP”), value added tax (“VAT”), excise duty, registration tax and other indirect taxes. We are exposed to the risk that our overall tax burden may increase in the future.

Changes in tax laws or regulations, or in the position of the relevant Italian and non-Italian authorities regarding the application, administration or interpretation of these laws or regulations, particularly if applied retrospectively, could have a material adverse effect on our business, results of operations and financial condition. These changes include the introduction of a global minimum tax at a rate of 15% under the Two-Pillar Solution to Address the Tax Challenges of the Digitalisation of the Economy, agreed upon by over 130 jurisdictions under the Organisation for Economic Co-operation and Development/G20 Inclusive Framework on Base Erosion and Profit Shifting and to be implemented as from January 1, 2023.

In addition, tax laws are complex and subject to subjective valuations and interpretive decisions, and we periodically may be subject to tax audits aimed at assessing our compliance with direct and indirect taxes. The tax authorities may not agree with our interpretations of, or the positions we have taken or intend to take on, tax laws applicable to our ordinary activities and extraordinary transactions. In case of challenges by the tax authorities to our interpretations, we could face long tax proceedings that could result in the payment of additional tax and penalties, with potential material adverse effects on our business, results of operations and financial condition.

We intend to be treated exclusively as a resident of the Republic of Italy for tax purposes, but Dutch or other tax authorities may seek to treat us as a tax resident of another jurisdiction as a result of which we could be subject to increased and/or different taxes.

As a result of the Conversion into a Dutch limited liability company (naamloze vennootschap) we are deemed tax resident in the Netherlands for purposes of the Dutch Dividend Withholding Tax Act 1965 (Wet op de dividendbelasting 1965) and the Dutch Corporate Income Tax Act 1969 (Wet op de vennootschapsbelasting 1969). However, we intend to maintain our management and organizational structure in such a manner that (i) our place of effective management would be in Italy and we should be regarded as a tax resident of Italy for Italian domestic law purposes; (ii) we should be considered to be exclusively tax resident in Italy for purposes of the applicable tax treaties, including the Convention between the Kingdom of the Netherlands and the Republic of Italy for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital (the “Italy-Netherlands Tax Treaty”); and (iii) we should not be regarded as a tax resident of any jurisdiction other than Italy or the Netherlands either for purposes of the domestic tax laws of such jurisdiction or for the purposes of any applicable tax treaty. However, the determination of our tax residency depends primarily upon our place of effective management, which is largely a question of fact, based on all relevant circumstances. Therefore, no assurance can be given regarding the final determination of our tax residency by tax authorities. In addition, changes to applicable laws and income tax treaties, including a change to the provisional reservation made by Italy under the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the “MLI”) made at the time of signing the MLI with respect to Article 4 (Dual Resident Entities) of the MLI, or interpretations thereof and changes to applicable facts and circumstances (e.g., a

 

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change of board members or the place where board meetings take place), may have a bearing on the determination of our tax residency and the consequent tax treatment.

If the competent tax authorities of a jurisdiction other than Italy, including the Netherlands, take the position that we should be treated as (exclusively) tax resident of that jurisdiction for purposes of an applicable tax treaty, we would be subject to corporation tax and all distributions made by us to our shareholders would be subject to any applicable dividend withholding tax in such other jurisdiction(s) as well as in Italy. To resolve any dual tax residency issue, we may have access to a mutual agreement procedure and/or dispute resolution mechanisms under an applicable tax treaty and the dispute resolution mechanism under the EU Arbitration Directive (if it is an EU jurisdiction), or we could submit our case for judicial review by the relevant courts. These procedures would require substantial time, costs and efforts, and it is not certain that double taxation issues can be resolved in all circumstances.

If we pay dividends, we may need to withhold tax on such dividends payable to our shareholders in both Italy and the Netherlands.

As a result of the Conversion into a Dutch limited liability company (naamloze vennootschap), but with our place of effective management in Italy (and not in the Netherlands), our dividends are generally subject to Italian dividend withholding tax. However, Dutch dividend withholding tax, in addition to Italian withholding tax, will be required to be withheld from dividends if and when paid to Dutch resident shareholders (and non-Dutch resident shareholders that have a permanent establishment in the Netherlands to which their shareholding is attributable). We will be required to identify our shareholders in order to assess whether there are Dutch residents (or non-Dutch residents with a permanent establishment to which the shares are attributable) in respect of which Dutch dividend withholding tax has to be withheld. Such identification may not always be possible in practice. If the identity of our shareholders cannot be assessed upon a payment of dividend, withholding of both Italian and Dutch dividend withholding tax from such dividend may occur. Our non-Dutch resident shareholders may apply for a refund of Dutch dividend withholding tax, if withheld on the distribution. For further discussion, see “TaxationMaterial Dutch Tax ConsiderationsDividend Withholding Tax.”

The consequences of the loyalty voting program are uncertain.

No statutory, judicial or administrative authority directly discusses how the receipt, ownership or disposition of Zegna Special Voting Shares under the Zegna loyalty voting program implemented in connection with the Business Combination should be treated for Italian or U.S. tax purposes and, as a result, the tax consequences in those jurisdictions are uncertain.

The fair market value of the Zegna Special Voting Shares, which may be relevant for tax purposes, is a factual determination and is not governed by any guidance that directly addresses such a situation. Because, among other things, the Zegna Special Voting Shares will not be transferable (other than, in very limited circumstances, together with the associated Ordinary Shares) and a shareholder will receive amounts in respect of the Zegna Special Voting Shares only if Zegna is liquidated, we expect to take the position that the fair market value of each Zegna Special Voting Share is minimal. However, the relevant tax authorities could assert that the value of the Zegna Special Voting Shares as determined by Zegna is incorrect.

The tax treatment of the loyalty voting program implemented in connection with Business Combination is unclear and shareholders are urged to consult their tax advisors in respect of the consequences of acquiring, owning and disposing of Zegna Special Voting Shares. See “Taxation—Material United States Federal Income Tax ConsiderationsLoyalty Voting Program and Zegna Special Voting Shares” for further discussion.

We benefit or seek to benefit from certain special tax regimes, which may not be available in the future.

We currently calculate taxes due in Italy based, among other things, on certain tax incentives recognized by Italian tax regulations for research and development expenses. In the past we have received tax benefit for research and development expenses in 2017.

 

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In addition, we benefit from the measures introduced in Italy by art. 110 of Law Decree no. 104/2020, converted into Law no. 126/2020, which re-opened the voluntary step-up of tangible assets, with the application of a 3% substitutive tax rate.

Furthermore, Italian Law no. 190/2014, as subsequently amended and supplemented, introduced an optional Patent Box regime in the Italian tax system. The Patent Box regime is a tax exemption related to, among others, the use of intellectual property assets. Business income derived from the use of each qualified intangible asset is partially exempted from taxation for both IRES and IRAP purposes. We have applied the Patent Box tax regime for the period from 2015 to 2019, in line with applicable tax regulations in Italy. The amount of the related tax benefits that we have received from the tax regime remains subject to limited uncertainty.

Special tax regimes and tax incentives may allow us to mitigate our tax burden in Italy. Significant changes in regulations or interpretation thereof might adversely affect the availability of such exemptions and result in higher tax charges, which may result in a material adverse effect on our business, results of operations and financial condition.

We are subject to risks related to the complexity and uncertainty in interpretation of transfer pricing rules.

We operate in about 80 countries worldwide with integrated industrial, commercial, stylist and communication functions, trademarks used in different jurisdictions and are subject to taxation in Italy and in other foreign countries in which our subsidiaries are located. Within Zegna, transactions between related parties located in different countries are carried out in the ordinary course of business and are mainly related to the purchase and sale of goods and the provision of services.

These transactions are subject to transfer pricing rules defined globally by the Organization for Economic and Co-operation and Development (“OECD”) and local tax laws. In this respect, our intercompany prices are set up consistently with the guidance provided by the OECD Transfer Pricing Guidelines and we and our subsidiaries prepare specific transfer pricing documentation with respect to such transactions.

Although we believe that our transfer pricing is correct, due to the complexity of these rules and the uncertainties in their interpretation, the tax authorities might challenge the prices of certain of our intercompany transactions and propose transfer pricing adjustments. Consequently, such adjustments may increase the related taxes and impose penalties and late payment interests, which may result in a material adverse effect on our business, results of operations and financial condition.

Risk factors relating to holding our Ordinary Shares and Warrants

An active and liquid trading market for our Ordinary Shares may not develop, the market price may be volatile and investors may suffer a loss.

Prior to the Business Combination, there has been no public market for the shares of Zegna. As required in connection with the Business Combination, our shares were listed on the NYSE on December 20, 2021. However, there can be no assurance that an active and liquid trading market for our Ordinary Shares will be maintained. Active, liquid trading markets generally result in lower price volatility and more efficient execution of buy and sell orders for investors. The actual market price of the Ordinary Shares may fluctuate because of several factors, including those described in this section “Risk Factors,” may not reflect our actual operating performance and may be lower than the price investors paid to purchase the Ordinary Shares.

Substantial sales of the Ordinary Shares and/or Warrants could cause the price of such securities to decline.

Following the Business Combination, the Zegna Shareholders and the IIAC Initial Shareholders are subject to restrictions on share sales for certain periods of time, but will be free to sell once those restrictions expire. See

 

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Description of Securities—Registration Rights and Lock-Up Arrangements.” In addition, certain Insider PIPE Subscribers are subject to restrictions in connection with the sale of the Ordinary Shares they purchased in the PIPE Financing. The other shareholders, which own the minority of Ordinary Shares following the Business Combination, are not subject to any resale restrictions. A sale of a significant number of Ordinary Shares or Warrants, or the anticipation by the market of a possible sale, particularly sales of Ordinary Shares on the part of any of the shareholders subject to lock-up obligations, following expiration of the lock-up, could have the effect of depressing the market price for such securities.

The exercise of our Warrants would increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders.

Immediately following the Effective Time, we had 13,416,667 Public Warrants and 6,700,000 Private Placement Warrants outstanding. To the extent our Warrants are exercised, additional Ordinary Shares will be issued, which will result in dilution to the holders of Ordinary Shares and potentially increase the number of shares eligible for resale in the public market. Sales of substantial numbers of Ordinary Shares in the public market could adversely affect the market price of our Ordinary Shares and Warrants. See “Substantial sales of the Ordinary Shares and/or Warrants could cause the price of such securities to decline”.

The price of the Ordinary Shares and Warrants may be volatile.

The price of Ordinary Shares and Warrants may fluctuate due to a variety of factors, including:

 

   

changes in the industries in which we and our customers operate;

 

   

variations in our operating performance and the performance of our competitors in general;

 

   

material and adverse impact of the COVID-19 pandemic on the markets and the broader global economy;

 

   

actual or anticipated fluctuations in our annual or interim operating results;

 

   

publication of research reports by securities analysts about us or our competitors or our industry;

 

   

the public’s reaction to our press releases, other public announcements and filings with the SEC;

 

   

our failure or the failure of our competitors to meet analysts’ projections or guidance that we or our competitors may give to the market;

 

   

additions and departures of key personnel;

 

   

changes in laws and regulations affecting our business;

 

   

commencement of, or involvement in, litigation involving us;

 

   

changes in our capital structure, such as future issuances of securities or the incurrence of additional debt;

 

   

the volume of Ordinary Shares available for public sale;

 

   

general economic and political conditions such as recessions, interest rates, fuel prices, foreign currency fluctuations, international tariffs, social, political and economic risks and acts of war or terrorism; and

 

   

the other factors described in this “Risk Factors” section.

These market and industry factors may materially reduce the market price of Ordinary Shares and Warrants regardless of our operating performance.

 

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Reports published by analysts, including projections in those reports that differ from our actual results, could adversely affect the price and trading volume of our shares.

Securities research analysts may establish and publish their own periodic projections for Zegna. These projections may vary widely and may not accurately predict the results we actually achieve. Our share price may decline if our actual results do not match the projections of these securities research analysts. Similarly, if one or more of the analysts who write reports on us downgrades our stock or publishes inaccurate or unfavorable research about our business, our share price could decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, our share price or trading volume could decline.

The loyalty voting program may affect the liquidity of the Ordinary Shares and reduce share price.

The implementation of Zegna’s loyalty voting program could reduce the trading liquidity and adversely affect the trading prices of the Ordinary Shares. The loyalty voting program is intended to reward shareholders for maintaining long-term share ownership by granting persons holding Ordinary Shares continuously for at least two years the option to elect to receive Zegna Special Voting Shares. Zegna Special Voting Shares cannot be transferred (except in very limited circumstances) and, if Ordinary Shares participating in the loyalty voting program are transferred they must be deregistered from the Loyalty Register and any corresponding Zegna Special Voting Shares transferred to us for no consideration (om niet). This loyalty voting program is designed to encourage a stable shareholder base and, conversely, it may deter trading by shareholders that may be interested in participating in the loyalty voting program. Therefore, the loyalty voting program may reduce liquidity in Ordinary Shares and adversely affect their trading price.

Our majority shareholders exercise control over Zegna, which may limit other shareholders’ ability to influence corporate matters and could delay or prevent a change in corporate control. The interests of our majority shareholders may differ from those of our other shareholders.

Following the Business Combination, Monterubello holds approximately 61.8% of the Ordinary Shares issued and outstanding. Please see “Beneficial Ownership.” As a result, Monterubello is able to influence our management and affairs and control the outcome of matters submitted to our shareholder meetings for approval, including the election of directors and any sale, merger, consolidation, or sale of all or substantially all of our assets. In addition, the loyalty voting program established by the Zegna Articles of Association may make it more difficult for a third party to acquire, or attempt to acquire, control of Zegna, even if a change of control were considered favorably by shareholders holding a majority of Ordinary Shares. As a result of Monturubello’s ownership and the loyalty voting program, a relatively large proportion of the voting power in Zegna could be concentrated in a relatively small number of shareholders who would have significant influence over Zegna. Monterubello and other shareholders participating in the loyalty voting program may have the power effectively to prevent or delay change of control or other transactions that may otherwise benefit Zegna’s shareholders, which may also prevent or discourage shareholder initiatives aimed at changing Zegna’s management or strategy or otherwise exerting influence over Zegna. In addition, Monterubello will exercise its voting power in its own interest, which may not be in line or even be in conflict with the interests of the remaining shareholders.

We incurred and will incur significant costs in connection with the Business Combination.

We have incurred and expect to incur significant, non-recurring costs in connection with consummation of the Business Combination and the transition to becoming a public company. These costs may have an adverse impact on our results of operations. We cannot provide assurance that the benefits of the Business Combination will offset the incremental transaction costs in the near term, if at all.

Zegna is a Dutch public company with limited liability, and its shareholders may have rights different to those of shareholders of companies organized in the United States.

The rights of the shareholders of Zegna may be different from the rights of shareholders of companies governed by the laws of U.S. jurisdictions. Zegna is a Dutch public company with limited liability (naamloze

 

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vennootschap). Its corporate affairs are governed by the Zegna Articles of Association. The rights of Zegna’s shareholders and the responsibilities of members of the Zegna Board may be different from the rights of shareholders and the responsibilities of members of board of directors of companies governed by the laws of other jurisdictions including the United States. In the performance of its duties, the Zegna Board is required by Dutch law to consider Zegna’s interests and the interests of its shareholders, employees and other stakeholders, in all cases with due observation of the principles of reasonableness and fairness. It is possible that some of these parties have interests that are different from, or in addition to, the interests of shareholders.

Zegna is a “foreign private issuer” under the rules and regulations of the SEC and, thus, is exempt from a number of rules under the Exchange Act of 1934 and permitted to file less information with the SEC than a company incorporated in the United States.

As a “foreign private issuer” Zegna is exempt from rules under the Exchange Act, that impose certain disclosure and procedural requirements for proxy solicitations under Section 14 of the Exchange Act. In addition, our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and the rules under the Exchange Act with respect to their purchases and sales of the Ordinary Shares. Moreover, Zegna is not required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act, nor required to comply with Regulation FD, which restricts the selective disclosure of material information. Accordingly, there may be less publicly available information concerning Zegna than there is for U.S. public companies.

If we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.

As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, and the rules and regulations of the applicable listing standards of the NYSE. We expect that the requirements of these rules and regulations will continue to increase our legal, accounting and financial compliance costs compared to the pre-Business Combination period, make some activities more difficult, time-consuming and costly and place significant strain on our personnel, systems and resources.

The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In particular, Section 404 of the Sarbanes-Oxley Act (“Section 404”) will require us to perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on, and our independent registered public accounting firm to attest to, the effectiveness of our internal control over financial reporting. We will be required to provide an annual management report on the effectiveness of our internal control over financial reporting commencing with our second annual report on Form 20-F, which we expect to file in 2023 with respect to the fiscal year ending December 31, 2022. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed or operating. Any failure to maintain effective disclosure controls and internal control over financial reporting could have a material and adverse effect on our business, results of operations and financial condition.

We have identified material weaknesses in our internal control over financial reporting. If we are unable to remediate these material weaknesses, or if we are unable to develop and maintain an effective system of internal controls, we may not be able to produce timely and accurate financial statements or comply with applicable laws and regulations, which may adversely affect our business and the price of our securities.

We have identified material weaknesses in the design and operating effectiveness of our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control

 

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over financial reporting, such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis.

We identified material weaknesses with respect to the Internal Control—Integrated Framework (2013 Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), concerning in particular the: (i) control environment, because, being a private company prior to the closing of the Business Combination, we did not have, among other things, a sufficient number of resources with appropriate competences in accounting and financial reporting for a SEC reporting company, appropriate oversight responsibilities, established structures, reporting lines and authorities, and accountability; (ii) risk assessment, as we did not design and implement an effective risk assessment to identify and communicate appropriate objectives and fraud, and to identify and assess changes in the business that could affect Zegna’s system of internal controls; (iii) information and communication, as we did not generate and provide quality information and communication necessary to support the functioning of internal control, including by providing information pursuant to objectives, responsibilities, and functions of internal control; (iv) monitoring activities, as we did not have the evidence to support evaluation of the effectiveness of monitoring controls to ascertain whether the components of internal control are present and functioning; and (v) control activities, as we did not design and implement effective control activities, including proper segregation of duties and general information technology controls, across substantially all financial statement account balances and disclosures.

As a consequence of these material weaknesses, accounting errors were identified in our annual consolidated financial statements primarily related to the application of accounting judgements on complex transactions concerning business combinations, impairment, fair value estimate, classification of financial instruments and classification of tax receivables and liabilities. The principal accounts concerned are goodwill, intangible assets, right of use, property, plant and equipment, inventories, other current financial assets, tax receivables and tax liabilities, cash and cash equivalents, derivative financial instruments, deferred taxes, depreciation, amortization and impairment of assets and financial income and expenses, which have been restated as included in this prospectus. These material weaknesses could result in a misstatement of our accounts or disclosures, which may result in a material misstatement in our annual or interim consolidated financial statements that would not be prevented or detected.

We are not currently required to make a formal assessment of the effectiveness of our internal control over financial reporting in accordance with the requirements of Section 404 of the Sarbanes-Oxley Act. Beginning with our second annual report on Form 20-F filed with the SEC (which is expected to be the annual report for the year ending December 31, 2022) we will be required to provide an annual management report on the effectiveness of our internal control over financial reporting and our independent registered public accounting firm will be required to attest to the effectiveness of our internal controls over financial reporting.

We are working to remediate the control deficiencies that led to these material weaknesses as quickly and efficiently as possible. The remediation measures that we are taking involve implementation of appropriate processes with the objective of improving the effectiveness of controls over financial reporting. In particular, we expect to engage an external advisor to assist with our design and execution of our Sarbanes-Oxley Act compliance program, including with respect to (i) performing our risk assessment and scoping to identify relevant controls that will be designed, implemented, and tested by management with the assistance of outside advisors, (ii) establishing compliant risk and control matrices for applicable processes across our markets, (iii) implementing a monitoring function, and (iv) designing or reassessing existing entity-level controls and general information technology controls and, as necessary, implementing enhancements to such controls.

We cannot assure that the measures that we are planning to take will be sufficient to remediate the control deficiencies that led to these material weaknesses in our internal control over financial reporting or that they will prevent or avoid potential future material weaknesses. In addition, neither our management nor an independent registered public accounting firm has performed an evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act. Had we or our independent registered public

 

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accounting firm performed an evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act, additional material weaknesses may have been identified.

If we are unable to remediate the material weaknesses we have identified, or if we identify additional material weaknesses in the future or otherwise fail to develop and maintain an effective system of internal controls, we may not be able to produce timely and accurate financial statements, which may subject us to adverse regulatory consequences and adversely affect investor confidence in us and, as a result, the price of our securities and our ability to access the capital markets in the future.

The Warrants are accounted for as liabilities and the changes in value of the Warrants could have a material effect on our financial results.

On April 12, 2021, the staff of the SEC (the “SEC Staff”) issued a public statement regarding the accounting and reporting considerations for warrants issued by special purpose acquisition companies entitled “Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”)” (the “SEC Staff Statement”). Specifically, the SEC Staff Statement focused on warrants that have certain settlement terms and provisions related to certain tender offers or warrants which do not meet the criteria to be considered indexed to an entity’s own stock, which terms are similar to those contained in the Warrant Agreement governing our Warrants. As a result of the SEC Staff Statement, 13,416,667 Public Warrants and 6,700,000 Private Placement Warrants are classified as derivative financial liabilities according to IAS 32 – Financial Instruments: Presentation and are measured at fair value, with changes in fair value each period reported in profit and loss.

IAS 32 provides for the remeasurement of the fair value of such liabilities at each balance sheet date, with a resulting non-cash gain or loss related to the change in the fair value being recognized in earnings in the statement of profit and loss. As a result of the recurring fair value measurement, our financial statements and results of operations may fluctuate periodically, based on factors which are outside of our control. Due to the recurring fair value measurement, we expect that we will recognize non-cash gains or losses on the Warrants each reporting period and that the amount of such gains or losses could be material.

Zegna’s ability to pay dividends may be limited and the level of future dividends is subject to change.

Payment of dividends on Zegna’s shares in the future will be subject to business conditions, financial conditions, earnings, cash balances, commitments, strategic plans and other factors that the Zegna Board may deem relevant at the time it recommends approval of the dividend. Any dividend policy, once adopted, will be subject to change based on changes in statutory requirements, market trends, strategic developments, capital requirements and a number of other factors. In addition, under the Zegna Articles of Association and Dutch law, dividends may be declared on the Ordinary Shares only if the amount of equity exceeds the paid up and called up capital plus the reserves that have to be maintained pursuant to Dutch law or the Zegna Articles of Association. Further, even if Zegna is permitted under the Zegna Articles of Association and Dutch law to pay cash dividends on its shares, it may not have sufficient cash to pay dividends in cash on its shares. Zegna is a holding company and its operations are carried out through its subsidiaries. As a result, Zegna’s ability to pay dividends will primarily depend on the ability of its subsidiaries to generate earnings and to provide Zegna with the necessary financial resources.

The Warrant Agreement and the New Warrant Agreement designate the courts of the State of New York or the United States District Court for the Southern District of New York as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by holders of our Warrants, which could limit the ability of warrant holders to obtain a favorable judicial forum for disputes with us.

Our Warrant Agreement and New Warrant Agreement provide that, subject to applicable law, (i) any action, proceeding or claim against us arising out of or relating in any way to such agreements, including under the

 

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Securities Act, will be brought and enforced in the courts of the State of New York or the United States District Court for the Southern District of New York, and (ii) we irrevocably submit to such jurisdiction, which jurisdiction shall be the exclusive forum for any such action, proceeding or claim. We will waive any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum.

Notwithstanding the foregoing, these provisions do not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal district courts of the United States of America are the sole and exclusive forum. Any person or entity purchasing or otherwise acquiring any interest in any of our warrants shall be deemed to have notice of and to have consented to the forum provisions in our Warrant Agreement and New Warrant Agreement. If any action, the subject matter of which is within the scope the forum provisions of the Warrant Agreement or the New Warrant Agreement, is filed in a court other than a court of the State of New York or the United States District Court for the Southern District of New York (a “foreign action”) in the name of any holder of our warrants, such holder shall be deemed to have consented to:

(x) the personal jurisdiction of the state and federal courts located in the State of New York in connection with any action brought in any such court to enforce the forum provisions (an “enforcement action”), and (y) having service of process made upon such warrant holder in any such enforcement action by service upon such warrant holder’s counsel in the foreign action as agent for such warrant holder.

This choice-of-forum provision may limit a warrant holder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us, which may discourage such lawsuits. Alternatively, if a court were to find this provision of our Warrant Agreement or New Warrant Agreement inapplicable or unenforceable with respect to one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could materially and adversely affect our business, financial condition and results of operations and result in a diversion of the time and resources of our management and board of directors.

You may only be able to exercise your Warrants on a “cashless basis” under certain circumstances, and if you do so, you will receive fewer Ordinary Shares from such exercise than if you were to exercise such warrants for cash.

The Warrant Agreement and, with respect to Warrants not then held by the IIAC Sponsor or its permitted transferees, the New Warrant Agreement provide that in the following circumstances holders of Warrants who seek to exercise their warrants will not be permitted to do it for cash and will, instead, be required to do so on a cashless basis in accordance with Section 3(a)(9) of the Securities Act: if we have so elected and the Ordinary Shares are at the time of any exercise of such Warrant not listed on a national securities exchange such that they satisfy the definition of “covered securities” under Section 18(b)(1) of the Securities Act. Additionally, holders of Warrants may only be able to exercise their Warrants on a cashless basis in accordance with Section 3(a)(9) of the Securities Act if there is no effective registration statement covering the issuance of Ordinary Shares issuable upon exercise of the Warrants. If you exercise your Warrants on a cashless basis in any of the foregoing circumstances, you will pay the warrant exercise price by surrendering all of the Warrants for that number of Ordinary Shares equal to the lesser of (A) the quotient obtained by dividing (x) the product of the number of Ordinary Shares underlying the Warrants, multiplied by the excess of the “fair market value” (as defined in the next sentence) of our Ordinary Shares over the exercise price of the Warrants by (y) the fair market value and (B) 0.361. The “fair market value” is the volume-weighted average price of the Ordinary Shares for the 10 trading days ending on the trading day prior to the date on which the notice of exercise is received by the warrant agent. As a result, you would receive fewer Ordinary Shares from such exercise than if you were to exercise such Warrants for cash.

Risks for any holders of Public Warrants

We may redeem your Public Warrants prior to their exercise at a time that is disadvantageous to you, thereby significantly impairing the value of such warrants. We have the ability to redeem outstanding Public

 

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Warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per warrant, provided that: (i) the closing price of the Ordinary Shares equals or exceeds $18.00 per share (as adjusted for share sub-divisions, share capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within a 30 trading day period ending on the third trading day prior to the date on which a notice of redemption is sent to the warrantholders and (ii) there is an effective registration statement under the Securities Act covering the issuance of Ordinary Shares issuable upon exercise of the Warrants, and a current prospectus relating thereto is available throughout the 30-day redemption period. If and when the Public Warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws. Redemption of the outstanding Public Warrants could force you (i) to exercise your Public Warrants and pay the exercise price therefor at a time when it may be disadvantageous for you to do so, (ii) to sell your Public Warrants at the then-current market price when you might otherwise wish to hold your Public Warrants, or (iii) to accept the nominal redemption price which, at the time the outstanding Public Warrants are called for redemption, is likely to be substantially less than the market value of your Public Warrants.

In addition, we have the ability to redeem the outstanding Public Warrants at any time after they become exercisable and prior to their expiration, at a price of $0.10 per warrant if, among other things, the closing price of the Ordinary Shares equals or exceeds $10.00 per share (as adjusted for share sub-divisions, share dividends, rights issuances, subdivisions, reorganizations, recapitalizations and the like) for any 20 trading days within a 30 trading day period ending on the third trading day prior to the date on which a notice of redemption is sent to the warrantholders. In such a case, the holders will be able to exercise their Public Warrants on a “cashless basis” prior to redemption for a number of Ordinary Shares determined based on a table in which the number of Ordinary Shares is based on the redemption date and the fair market value of the Ordinary Shares, where fair market value is the volume weighted average price of the Ordinary Shares for the ten (10) trading days immediately following the date on which notice of redemption is sent to the warrantholders.

The value received upon exercise of the Public Warrants (1) may be less than the value the holders would have received if they had exercised their Public Warrants at a later time where the underlying share price is higher and (2) may not compensate the holders for the value of the Public Warrants.

It may be difficult to enforce U.S. judgments against us.

Zegna is a company incorporated under the laws of the Netherlands, and a substantial portion of its assets are outside of the United States. Most of Zegna’s directors and senior management and independent auditors are resident outside the United States, and all or a substantial portion of their respective assets may be located outside the United States. As a result, it may be difficult for U.S. investors to effect service of process within the United States upon these persons. It may also be difficult for U.S. investors to enforce within the United States judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof. In addition, there is uncertainty as to whether the courts outside the United States would recognize or enforce judgments of U.S. courts obtained against Zegna or its directors and officers predicated upon the civil liability provisions of the securities laws of the United States or any state thereof. Therefore, it may be difficult to enforce U.S. judgments against Zegna, its directors and officers and independent auditors.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. Forward-looking statements provide the respective current expectations or forecasts of future events of Zegna. Forward-looking statements include statements about Zegna’s expectations, beliefs, plans, objectives, intentions, assumptions and other statements that are not historical facts. Words or phrases such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “objective,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “will” and “would,” or similar words or phrases, or the negatives of those words or phrases, may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking. Examples of forward-looking statements in this prospectus include, but are not limited to, statements regarding Zegna’s disclosure concerning Zegna’s operations, cash flows, financial position and dividend policy.

Forward-looking statements are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions that could cause actual results to differ materially from those expected or implied by the forward-looking statements. The risks and uncertainties include, but are not limited to:

 

   

the impact of COVID-19 or similar public health crises on Zegna’s business;

 

   

the outcome of any legal proceedings that may be instituted against Zegna or IIAC related to the Business Combination;

 

   

the effect of the consummation of the Business Combination on Zegna’s business, cash flows, financial condition or results of operations;

 

   

the exercise by contractual counterparties of rights arising as a result of the Business Combination under the provisions included in agreements to which Zegna is a party, and the potential impact of the Business Combination on Zegna’s existing agreements with third parties;

 

   

the ability of Zegna to safeguard the recognition, integrity and reputation of its brands and to identify and respond to new and changing customer preferences;

 

   

the ability of Zegna to successfully implement its strategy;

 

   

disruptions to Zegna’s manufacturing and logistics facilities, as well as DOSs, including as a result of the COVID-19 pandemic;

 

   

risks related to the operation of Zegna’s DOSs, including as a result of difficulties in renewing the existing lease agreements, an increase in rental charges or a decline in sales, and the operation of points of sale by third parties in the wholesale channel;

 

   

fluctuations in the price or quality of, or disruptions in the availability of, raw materials used by Zegna for its products, which could cause Zegna to incur increased costs, disrupt its manufacturing processes or prevent or delay Zegna from meeting its customers’ demand;

 

   

the ability of Zegna to negotiate, maintain or renew license agreements and strategic alliances;

 

   

shifts in travel patterns or declines in travel volumes, including as a result of the COVID-19 pandemic;

 

   

the ability to attract and retain key senior personnel and preserve craftmanship skills;

 

   

Zegna’s ability to protect its intellectual property rights;

 

   

disruptions or breaches compromising Zegna’s information technology systems or the personal information of Zegna’s customers;

 

   

Zegna’s ability to maintain Zegna’s securities’ listing on the NYSE;

 

   

the fact that the market price of Zegna’s securities may be volatile due to a variety of factors;

 

   

the ability to develop and maintain effective internal controls;

 

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material weaknesses have been identified in Zegna’s internal control over financial reporting and if Zegna fails to remediate these material weaknesses or maintain an effective system of internal controls, it may not be able to produce timely and accurate financial statements or comply with applicable laws and regulations;

 

   

changes in local economic, business, regulatory, social and political conditions, as well as changes in general economic conditions and in demand for luxury goods;

 

   

exchange rate fluctuations, interest rate changes, credit risk and other market risks;

 

   

the high levels of competition in the luxury goods market;

 

   

compliance with laws, including laws and regulation related to intellectual property, competition, product safety, packaging and labeling, import and processing of certain raw materials and finished goods, data protection, limits on cash payments, worker health and safety and the environment;

 

   

changes in trade policy, the imposition of tariffs, the enactment of tax reforms and other changes in laws and regulations;

 

   

disruptions arising from political, social and economic instability, or civil unrest; and

 

   

other factors discussed elsewhere in this prospectus in the section “Risk Factors”.

Actual results could differ materially from those anticipated in forward-looking statements for many reasons, including the factors described in the section “Risk Factors” of this prospectus. Accordingly, you should not rely on such forward-looking statements, which speak only as of the date of this prospectus. Zegna undertakes no obligation to publicly revise any forward-looking statement to reflect circumstances or events after the date of this prospectus or to reflect the occurrence of unanticipated events. You should, however, review the factors and risks Zegna describes in the reports it will file from time to time with the SEC after the date of this prospectus.

Although Zegna believes the expectations reflected in the forward-looking statements were reasonable at the time made, it cannot guarantee future results, level of activity, performance or achievements. Moreover, neither Zegna, nor any other person assumes responsibility for the accuracy or completeness of such forward-looking statements. You should carefully consider the cautionary statements contained or referred to in this section in connection with the forward looking statements contained in this prospectus and any subsequent written or oral forward-looking statements that may be issued by Zegna or persons acting on its behalf.

 

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USE OF PROCEEDS

All of the Ordinary Shares and Warrants offered by the selling securityholders pursuant to this prospectus will be sold by the selling securityholders for their respective accounts. We will not receive any of the proceeds from such sales. We will pay certain expenses associated with the registration of the securities covered by this prospectus, as described in the section titled “Plan of Distribution”.

We will receive up to an aggregate of approximately $231.3 million from the exercise of the Warrants, assuming the exercise in full of all of the Warrants. We expect to use the net proceeds from the exercise of the Warrants for general corporate purposes. We will have broad discretion over the use of proceeds from the exercise of the Warrants. There is no assurance that the holders of the Warrants will elect to exercise any or all of such Warrants. To the extent that any of the Warrants are exercised on a “cashless basis,” the amount of cash we would receive from the exercise of the Warrants will decrease.

 

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DIVIDEND POLICY

We have not paid any cash dividends on the Ordinary Shares from the Closing of the Business Combination to date. The payment of cash dividends in the future will be dependent on business conditions, financial conditions, earnings, cash balances, commitments, strategic plans and other factors that the Zegna Board may deem relevant at the time it recommends approval of any such dividend.

Pursuant to Dutch law and the Zegna Articles of Association, the distribution of dividends will take place following the adoption of the annual accounts, from which we will determine whether such distribution is permitted. We may make distributions to our shareholders, whether from profits or from our freely distributable reserves, only insofar as our shareholders’ equity exceeds the sum of the paid-up and called-up share capital plus any reserves to be maintained by Dutch law or the Zegna Articles of Association.

The Zegna Board may resolve to reserve the profits or part of the profits. Any profits remaining after the reservation referred to in the previous sentence by the Zegna Board will first be applied to allocate and add to the dividend reserve for each class of Zegna Special Voting Shares an amount equal to 1% of the aggregate nominal value of all issued and outstanding Zegna Special Voting Shares of that class. The profits remaining after application of the preceding sentence will be at the disposal of the Zegna General Meeting, which may resolve to add the remaining profits to the reserves or distribute them to the holders of Ordinary Shares. Distributions of dividends will be made to Zegna’s shareholders in proportion to the nominal value of their Ordinary Shares.

Pursuant to Dutch law and the Zegna Articles of Association, the Zegna Board or the Zegna General Meeting at the proposal of the Zegna Board will be allowed to resolve upon interim distributions on Ordinary Shares. For this purpose, the Zegna Board must prepare an interim statement of assets and liabilities. Such interim statement shall show our financial position not earlier than on the first day of the third month before the month in which the resolution to make the interim distribution is announced. An interim dividend can only be paid if (i) an interim statement of assets and liabilities is drawn up showing that the funds available for distribution are sufficient, and (ii) our shareholders’ equity exceeds the sum of the paid-up and called-up share capital and any reserves to be maintained by Dutch law or the Zegna Articles of Association. Interim distributions will be made in cash, in kind or in the form of Ordinary Shares.

Since Zegna is a holding company and its operations are carried out through its subsidiaries, Zegna’s ability to pay dividends will primarily depend on the ability of its subsidiaries to generate earnings and to provide it with the necessary financial resources.

 

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CAPITALIZATION

The following table sets forth the capitalization of Zegna on an unaudited pro forma combined basis as of June 30, 2021, and should be read together with the unaudited pro forma condensed combined financial information of Zegna as of and for the six months ended June 30, 2021 and for the year ended December 31, 2020, prepared in accordance with Article 11 of SEC Regulation S-X and included in the section “Unaudited Pro Forma Condensed Combined Financial Information” of this prospectus.

 

As of June 30, 2021

  Zegna Historical
(in thousands)
    Pro Forma
(in  thousands)
 

Cash and cash equivalents, other current financial assets and derivatives

   

Cash and cash equivalents

    285,937       421,082  

Derivatives financial instruments—assets

    1,713       1,713  

Other current financial assets

    373,330       373,331  
 

 

 

   

 

 

 

Total Cash and cash equivalents, other current financial assets and derivatives

    660,980       796,126  
 

 

 

   

 

 

 

Borrowings, other financial liabilities and derivatives

   

Non-current financial borrowings

    533,282       533,282  

Current financial borrowings

    182,242       198,769  

Derivative financial instruments—Liabilities

    9,372       9,372  

Other non-current financial liabilities (bonds and others) (*)

    7,666       7,666  

Other current financial liabilities (other) (**)

    1,676       1,676  
 

 

 

   

 

 

 

Total borrowings, other financial liabilities and derivatives

    734,238       750,765  
 

 

 

   

 

 

 

Equity:

   

Share capital

    4,300       5,938  

Other reserves

    (270,384     (650,494

Additional paid in capital

    —         639,226  

Retained earnings

    925,475       529,351  

Total equity attributable to non-controlling interest

    44,289       40,762  
 

 

 

   

 

 

 

Total equity

    703,680       564,783  
 

 

 

   

 

 

 

Total capitalization

    1,437,918       1,315,548  
 

 

 

   

 

 

 

 

(*)

Includes only the bonds and other components of the “Other non-current financial liabilities” line item from Zegna’s unaudited condensed consolidated statement of financial position.

(**)

Includes only the other component of the “Other current financial liabilities” line item from Zegna’s unaudited condensed consolidated statement of financial position, which relates to a short-term loan.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

Introduction

The following unaudited pro forma condensed combined financial information (the “unaudited pro forma condensed combined financial information”) is provided for illustrative purposes only and should not be considered an indication of the results of operations or financial position of Zegna following the Business Combination.

The following unaudited pro forma condensed combined statement of financial position as June 30, 2021 combines the historical statement of financial position of IIAC as of June 30, 2021 with the historical consolidated statement of financial position of Zegna as of June 30, 2021, giving pro forma effect to the Business Combination and the PIPE Financing, as if they had occurred as of June 30, 2021.

The following unaudited pro forma condensed combined statement of profit and loss for the six months ended June 30, 2021 combines the historical statement of operations of IIAC for the six months ended June 30, 2021, and the historical consolidated statements of operations of Zegna for six months ended June 30, 2021, giving pro forma effect to the Business Combination and the PIPE Financing as if they had occurred on January 1, 2020, the beginning of the earliest period presented in this document.

The following unaudited pro forma condensed combined statement of profit and loss for the year ended December 31, 2020 combines the historical statement of operations of IIAC for the year ended December 31, 2020, and the historical consolidated statements of operations of Zegna for year ended December 31, 2020, giving pro forma effect to the Business Combination and the PIPE Financing as if they had occurred on January 1, 2020, the beginning of the earliest period presented in this document.

The unaudited pro forma condensed combined financial statements have been derived from:

 

   

the financial statements of IIAC as of December 31, 2020 and for the period from September 7, 2020 (inception) to December 31, 2020, included in this prospectus, and the IIAC unaudited condensed financial statements as of June 30, 2021, and for the three and six months ended June 30, 2021 as filed on Form 10-Q/A on November 23, 2021; and

 

   

the Zegna Annual Consolidated Financial Statements and the Zegna Interim Condensed Consolidated Financial Statements included in this prospectus and incorporated herein by reference.

This information should be read together with the consolidated financial statements of Zegna as of and for the year ended December 31, 2020 and its related notes and the unaudited condensed consolidated financial statements as of and for the six months ended June 30, 2021 and its related notes and the consolidated financial statements of IIAC as of and for the year ended December 31, 2020 and its related notes and the unaudited condensed consolidated financial statements as of and for the six months ended June 30, 2021 and its related notes, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and other financial information included in this prospectus or as filed by IIAC on Form 10-Q/A on November 23, 2021, as applicable.

References to the “Combined Company” in this section “Unaudited Pro Forma Condensed Combined Financial Information” are to Zegna following the consummation of the transactions contemplated by the Business Combination Agreement.

Description of the Business Combination

On December 17, 2021, Zegna closed the previously announced Business Combination pursuant to the Business Combination Agreement, dated as of July 18, 2021, by and among IIAC, Zegna and Zegna Merger Sub. On the

 

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Closing Date (i) Zegna transferred its legal seat from Italy to the Netherlands and became a Dutch public limited company and (ii) Zegna Merger Sub merged with and into IIAC, with IIAC as the Surviving Company in the Merger. As of the Closing Date, the Zegna Shareholders held 155,400,000 Ordinary Shares (excluding any Ordinary Shares purchased in the PIPE Financing).

Zegna and IIAC entered into certain PIPE Subscription Agreements, each dated July 18, 2021, with the PIPE Investors, pursuant to which, and subject to the terms and conditions thereto, the PIPE Investors agreed to subscribe an aggregate of 25,000,000 Ordinary Shares on the Closing Date for an aggregate purchase price of $250,000,000 (approximately €210,600,000). The PIPE Financing closed concurrently with the Closing.

On December 3, 2021 Zegna entered into Redemption Offset Agreements with the Offset PIPE Investors pursuant to which the Offset PIPE Investors agreed to subscribe for Ordinary Shares at the Closing to offset redemptions of Class A Shares by IIAC public shareholders up to a certain level if the redemptions exceeded the Redemption Threshold Amount (as defined in each Redemption Offset Agreement). On December 16, 2021, the Offset PIPE Investors agreed to subscribe an aggregate of 12,500,000 Ordinary Shares on the Closing Date for an aggregate purchase price of $125,000,000 (approximately €110,500,000). The Offset PIPE Financing closed concurrently with the Closing.

For more information on the Business Combination, please see the section entitled “Summary—Closing of the Business Combination”.

In connection with the consummation of the Business Combination, Zegna, the Sponsor, the IIAC Initial Shareholders and the Zegna Shareholders entered into the Lock-Up Agreements. See “Shares Eligible For Future Sale—Lock-Up Arrangements”.

Accounting for the Business Combination

The Business Combination is accounted for as a capital reorganization in accordance with IFRS. Under this method of accounting, IIAC is treated as the “acquired” company for financial reporting purposes, and the Company is the accounting “acquirer”. Accordingly, for accounting purposes, the Business Combination is treated as the equivalent of the Company issuing shares for the net assets of IIAC, accompanied by a recapitalization. The net assets of IIAC are stated at historical cost, with no goodwill or other intangible assets recorded.

The Company has been determined to be the accounting acquirer based on the evaluation of the following facts and circumstances:

 

   

Zegna’s shareholders hold a majority of the voting power of the Combined Company;

 

   

Zegna’s operations substantially comprise the ongoing operations of the Combined Company;

 

   

Zegna’s designees comprise the majority of the governing body of the Combined Company;

 

   

Zegna’s senior management is the senior management of the Combined Company; and

 

   

Zegna is the larger entity, in terms of substantive operations and employee base.

It has been determined that IIAC does not meet the definition of a “business” pursuant to IFRS 3 Business Combinations, hence the transaction is accounted for within the scope of IFRS 2 (“Share-based payment”). In accordance with IFRS 2, the difference in the fair value of the Company equity instruments deemed issued to IIAC shareholders, over the fair value of identifiable net assets of IIAC represents a service for listing and is accounted for as a share-based payment which is expensed as incurred.

 

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Basis of Presentation

The Zegna Annual Consolidated Financial Statements have been prepared in accordance with IFRS as issued by the IASB and in its presentation currency of the Euro. The Zegna unaudited condensed consolidated financial Statements as of June 30, 2021 have been prepared in accordance with IAS 34, Interim Financial Reporting. The financial statements of IIAC as of December 31, 2020 and for the period from September 7, 2020 (inception) to December 31, 2020 have been prepared in accordance with U.S. GAAP in its presentation currency of the U.S. Dollar. The condensed combined pro forma financial information reflects IFRS, the basis of accounting used by the registrant, Zegna, and the historical financial information of IIAC has been adjusted to give effect to the differences between U.S. GAAP and IFRS for the purposes of the unaudited condensed combined pro forma financial information (see Note 3 – IFRS Policy and Presentation Alignment). For purposes of preparing this presentation, the historical statement of financial position of IIAC has been translated into Euros at the rate in effect on June 30, 2021 of $1.00 to €0.8415, the historical statement of operations of IIAC for the six months ended June 30, 2021 has been translated into Euros using the average exchange rate for the period from January 1, 2021 through June 30, 2021 of $1.00 to €0.8297 and the historical statement of operations of IIAC for the year ended December 31, 2020 has been translated into Euros using the average exchange rate for the period from September 7, 2020 (inception) through December 31, 2020 of $1.00 to €0.8410. The unaudited pro forma condensed combined financial information is presented in thousands and the footnote figures are presented in millions.

In anticipation of the transactions contemplated by the Business Combination Agreement, IIAC entered into a deal-contingent foreign exchange forward transaction (the “IIAC Deal-Contingent Forward”) with Goldman Sachs International pursuant to which IIAC was required to deliver a specified amount of U.S. Dollars in exchange for €305,000,000 contemporaneously with the Closing. Subject to certain customary exceptions, if the Closing had not occurred by April 18, 2022, IIAC would have had no liability to Goldman Sachs International. Under the IIAC Deal-Contingent Forward, the foreign currency exchange rate to be paid as of the Closing Date was $1.19309 per €1.00. This rate has been applied to convert certain transaction expenses estimated to be paid or incurred in connection with the deal as presented and described in the unaudited condensed combined pro forma financial statements.

In anticipation of the transactions contemplated by the Business Combination Agreement, on November 3, 2021 Zegna acquired a deal-contingent option (the “Deal-Contingent Option”) from a bank counterparty pursuant to which Zegna had the right, but not the obligation, to exchange $130 million for Euros at an exchange rate of $1.19 per Euro, contingent on the Closing of the Business Combination. The Deal-Contingent Option was set to expire on January 14, 2022. The Deal-Contingent Option was intended to hedge currency risk for the distribution of Euros by locking in the strike exchange rate of $1.19 per Euro. Zegna paid a deal-contingent premium to acquire the option because the Closing occurred; however, because the Deal-Contingent Option was out of the money on the Closing Date, the option was not exercised.

In anticipation of the transactions contemplated by the Business Combination Agreement, Zegna entered into a deal-contingent foreign exchange forward transaction (the “Zegna Deal-Contingent Forward”) with BNP Paribas pursuant to which Zegna was required to deliver a specified amount of Euros in exchange for $130,000,000 contemporaneously with the Closing. Under the Zegna Deal-Contingent Forward, the foreign currency exchange rate to be paid as of the Closing Date was $1.1314 per €1.00. This rate has been applied to convert certain transaction expenses estimated to be paid or incurred in connection with the deal as presented and described in the unaudited condensed combined pro forma financial statements.

The adjustments presented on the unaudited pro forma condensed combined financial information have been identified and presented to provide an understanding of the Combined Company upon consummation of the Business Combination for illustrative purposes.

The following unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X as amended by the final rule, Release No. 33-10786 “Amendments to

 

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Financial Disclosures about Acquired and Disposed Businesses.” Release No. 33-10786 replaces the existing pro forma adjustment criteria with simplified requirements to depict the accounting for the transaction (“Transaction Accounting Adjustments”) and present the reasonably estimable synergies and other transaction effects that have occurred or are reasonably expected to occur (“Management’s Adjustments”). Zegna has elected not to present Management’s Adjustments and will only be presenting Transaction Accounting Adjustments in the unaudited pro forma condensed combined financial information. The historical financial information has been adjusted to reflect the pro forma adjustments that are directly attributable to the Business Combination and the PIPE Financing.

The unaudited pro forma condensed combined financial information is for illustrative purposes only and is not intended to represent or be indicative of the consolidated results of operations or financial position that would have been reported had the Business Combination been completed as of the date presented, and should not be taken as representative of the future consolidated results of operations or financial position of the Combined Company following the Business Combination. The adjustments presented in the unaudited pro forma condensed combined financial information have been identified and presented to provide relevant information necessary for an accurate understanding of the Combined Company at the Closing Date of the Business Combination. The financial results could have been different had the companies been combined for the referenced period. Zegna and IIAC have not had any historical relationship prior to the Business Combination. Accordingly, no pro forma adjustments were required to eliminate activities between the companies.

Zegna believes this unaudited pro forma condensed combined financial information to not be meaningful given the combined entity incurred significant losses during the historical period presented

The following table summarizes the number of Ordinary Shares outstanding at Closing Date (excluding the Escrowed Shares from the computation of Ordinary Shares outstanding):

 

     Ownership in
Voting Shares
     % Voting Shares
Outstanding
 

Zegna Shareholders (1)(2)

     155,400,000        65.5

IIAC Public Shareholders

     16,881,159        7.1

FPA Purchaser (3)

     27,531,250        11.6

PIPE Investors

     25,000,000        10.5

Offset PIPE Investors

     12,500,000        5.3
  

 

 

    

 

 

 
     237,312,409        100.0
  

 

 

    

 

 

 

 

(1)

Excludes shares to be issues to certain Zegna Shareholders in connection with the PIPE Financing.

(2)

Includes the Share Repurchase, whereby Zegna repurchased 54,600,000 Ordinary Shares from Monterubello in exchange for the Cash Consideration.

(3)

Includes shares issued to the FPA Purchaser and to the other IIAC Initial Shareholders but excludes (i) shares issued to them in connection with the PIPE Financing and the Offset PIPE Financing and (ii) the Escrowed Shares, which are subject to release if certain targets are attained, as further described under “Shares Eligible For Future Sale—Escrowed Shares”.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL POSITION

As of June 30, 2021

 

                                        As of June 30,
2021
 
(in € thousands)   Zegna
Historical
IFRS
    Zegna
Disposal
    Adjusted
Zegna
IFRS
    Adjusted
IIAC
Historical
    Share
Repurchase
          Transaction
Accounting
Adjustments
          Pro Forma
Combined
 

Balance Sheet

                 

Current Assets

                 

Cash and cash equivalents

  285,937     1     285,938     304     —         337,497       A     421,082  
    —         —         —         —         —           210,579       H       —    
    —         —         —         —         —           (51,757     I       —    
    —         —         —         —         —           191,807       C       —    
    —         —         —         —         —           (11,855     D       —    
    —         —         —         —         —           (273     M       —    
    —         —         —         —         —           (196,641     B       —    
    —         —         —         —         —           110,483       N       —    
    —         —         —         —         (455,000     O       —           —    

Trade receivables

    145,434       857       146,291       —         —           —           146,291  

Tax receivables

    8,409       —         8,409       —         —           —           8,409  

Prepaid expenses

    —         —         —         —         —           —           —    

Short term financial receivable from subsidiaries

    —         —         —         —         —           —           —    

Derivatives financial instruments

    1,713       —         1,713       —         —           —           1,713  

Inventories

    335,141       —         335,141       —         —           —           335,141  

Other current financial assets

    373,330       1       373,331       —         —           —           373,331  

Other current assets

    74,674       (4,139     70,535       850       —           (850     K       70,535  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Total current assets

    1,224,638       (3,280     1,221,358       1,154       (455,000       588,990         1,356,502  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Non-current assets

                 

Investments held in Trust Accounts

    —         —         —         337,497       —           (337,497     A       —    

Property plant and equipment

    112,789       (1     112,788       —         —           —           112,788  

Investment property

    —         —         —         —         —           —           —    

Intangibles asset with a finite useful life

    400,303       —         400,303       —         —           —           400,303  

Right of use

    317,579       41,791       359,370       —         —           —           359,370  

Goodwill

    —         —         —         —         —           —           —    

Investments at equity method

    20,084       (1     20,083       —         —           —           20,083  

Deferred tax assets

    79,111       1,917       81,028       —         —           —           81,028  

Assets held for sale

    271,573       (271,573     —         —         —           —           —    

Other financial assets

    42,427       (1     42,426       —         —           —           42,426  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

TOTAL ASSETS

  2,468,504     (231,148   2,237,356     338,651     (455,000     251,493       2,372,500  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

 

44


Table of Contents
                                  As of June 30,
2021
 
(in € thousands)   Zegna
Historical
IFRS
    Zegna
Disposal
    Adjusted
Zegna
IFRS
    Adjusted
IIAC
Historical
    Share
Repurchase
    Transaction
Accounting
Adjustments
          Pro Forma
Combined
 

Liabilities and Shareholders’ Equity

               

Current liabilities

               

Current financial borrowings

  182,242     16,527     198,769     —       —       —         198,769  

Lease liabilities

    62,672       3,788       66,460       —         —         —           66,460  

Current provision for risks and charges

    8,707       —         8,707       —         —         —           8,707  

Derivative financial instruments

    9,372       —         9,372       —         —         —           9,372  

Trade liabilities including customer advances

    190,795       2,132       192,927       —         —         —           192,927  

Tax liabilities

    25,631       —         25,631       —         —         —           25,631  

Other current financial liabilities

    11,276       —         11,276       —         —         —           11,276  

Other current liabilities

    100,200       5,796       105,996       451       —         —           106,447  

Note payable - due to related party

    —         —         —         1,052       —         —           1,052  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Total current liabilities

    590,895       28,243       619,138       1,503       —         —           620,641  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Non-current financial borrowings

    533,282       —         533,282       —           —           533,282  

Other non-current financial liabilities

    168,215       —         168,215       —         —         —           168,215  

Lease liabilities

    315,705       40,597       356,302       —         —         —           356,302  

Non current provision for risks and charges

    38,795       —         38,795       —         —         —           38,795  

Employee termination indemnities

    24,315       —         24,315       —         —         —           24,315  

Deferred tax liabilities

    49,157       (594     48,563       —         —         —           48,563  

Deferred underwriting commissions

    —         —         —         11,855       —         (11,855     D       —    

Liabilities held for sale

    44,460       (44,460     —         —         —         —           —    

Warrant liability

    —         —         —         17,604       —         —           17,604  

Other liabilities

    —         —         —         338,691       —         (338,691     B       —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

TOTAL LIABILITIES

  1,764,824     23,786     1,788,610     369,653     —       (350,546     1,807,717  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

 

45


Table of Contents
                                        As of June 30,
2021
 
(in € thousands)   Zegna
Historical
IFRS
    Zegna
Disposal
    Adjusted
Zegna
IFRS
    Adjusted
IIAC
Historical
    Share
Repurchase
          Transaction
Accounting
Adjustments
          Pro Forma
Combined
 

Commitments and Contingencies

                 

Class A ordinary shares, $0.0001 par value; 500,000,000 at $10.00 per share authorized, 40,250,000 shares subject to possible redemption

  —       —       —       —       —         —         —    

Shareholders’ Equity

                 

Preference shares, $0.0001 par value; 5,000,000 shares authorized; none issued and outstanding

    —         —         —         —         —           —           —    

Class A ordinary shares, $0.0001 par value; 500,000,000 shares authorized; none issued and outstanding (excluding 40,250,000 shares subject to possible redemption)

    —         —         —         —         —           1       B       —    
    —         —         —         —         —           2       C       —    
    —         —         —         —         —           (3     F       —    

Class B ordinary shares, $0.0001 par value; 50,000,000 shares authorized; 10,062,500 shares issued and outstanding

    —         —         —         1       —           (1     F       —    

Share capital (Historical)

    4,300       —         4,300       —         —           (4,300     G       —    

Share capital (Company)

    —         —         —         —         —           989       F       5,938  
    —         —         —         —         —           4,300       G       —    
    —         —         —         —         —           500       H       —    
    —         —         —         —         —           250       N       —    
    —         —         —         —         —           (101     J       —    

Other reserves

    (270,384     —         (270,384     —         (455,000     O       74,890       L       (650,494

Profit/(loss) for the year

    —         —         —         —         —           —           —    

Additional paid-in capital

    —         —         —         —         —           142,049       B       639,226  
    —         —         —         —         —           210,079       H       —    
    —         —         —         —         —           (17,037     I       —    
    —         —         —         —         —           191,805       C       —    
    —         —         —         —         —           (31,003     E       —    
    —         —         —         —         —           (985     F       —    
    —         —         —         —         —           34,085       J    
    —         —         —         —         —           110,233       N    

Retained earnings

    925,475       (251,407     674,068       (31,003     —           —           529,351  
    —         —         —         —         —           (74,890     L       —    
    —         —         —         —         —           (34,720     I       —    
    —         —         —         —         —           31,003       E       —    
    —         —         —         —         —           (33,984     J       —    
    —         —         —         —         —           (850     K       —    
    —         —         —         —         —           (273     M    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

TOTAL SHAREHOLDER’S EQUITY

  659,391     (251,407   407,984     (31,002   (455,000     602,039       524,021  

Total equity attributable to non-controlling interest

    44,289       (3,527     40,762       —         —           —           40,762  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

TOTAL EQUITY

  703,680     (254,934   448,746     (31,002   (455,000     602,039       564,783  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY

  2,468,504     (231,148   2,237,356     338,651     (455,000     251,493       2,372,500  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

 

46


Table of Contents

PRO FORMA CONDENSED COMBINED STATEMENT OF PROFIT AND LOSS

For the Six Months Ended June 30, 2021

 

                            As of June 30, 2021  
(in € thousands)   Zegna
Historical
IFRS
    Zegna
Disposal
(AA)
    Adjusted
Zegna
IFRS
    Adjusted
IIAC
Historical
    Transaction
Accounting
Adjustments
          Pro Forma
Combined
 

Revenues

  603,340     305     603,645     —       —         603,645  

Other income

    5,367       (2,432     2,935       —         —           2,935  

Costs of raw materials and consumables

    (161,298     59       (161,239     —         —           (161,239

Costs for services

    (138,019     181       (137,838     (772     —         AA       (138,610

Personnel costs

    (160,201     577       (159,624     —         (1,105     CC       (160,729

Depreciation, amortization and impairment of assets

    (78,605     (2,807     (81,412     —         —           (81,412

Write downs and other provisions

    (3,174     1       (3,173     —         —         EE       (3,173

Other operating costs

    (15,664     777       (14,887     —         —         BB       (14,887
    —         —         —         —         —         DD       —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Profit/(loss) from operations

    51,747       (3,340     48,406       (772     (1,105       46,529  

Other income/expenses:

             

Financial income

    32,531       159       32,690       —         —           32,690  

Financial expenses

    (16,685     (228     (16,913     —         —           (16,913

Exchange gains/(losses)

    (2,728     (72     (2,800     —         —           (2,800

Income/(loss) from joint ventures and investments

    (346     (1     (347     —         —           (347

Impairment of equity investments

    —         —         —         —         —           —    

Offering costs associated with warrant liabilities

    —         —         —         —         —           —    

Dividend income on investment held in Trust Account

    —         —         —         10       (10     FF       —    

Change in fair value of warrant liabilities

    —         —         —         7,010       —           7,010  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Income before taxes

    64,519       (3,482     61,036       6,248       (1,115       66,170  

Income taxes

    (32,284     1,063       (31,221     —         —           (31,221
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Net income

  32,235     (2,419   29,815     6,248     (1,115     34,949  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Weighted average shares outstanding of Class A ordinary shares

    —         —         —         40,250,000       —           —    

Basic and diluted net income per Class A ordinary share

    —         —         —       0.12       —           —    

Weighted average shares outstanding of Class B ordinary shares

    —         —         —         10,062,500       —           —    

Basic and diluted net loss per Class B ordinary share

    —         —         —       0.12       —           —    

Profit/(loss) attributable to parent company

  28,157     (2,374   25,783     —       —         30,916  

Profit/(loss) attributable to non-controlling interest

  4,077     (45   4,032     —       —         4,032  

 

47


Table of Contents

PRO FORMA CONDENSED COMBINED STATEMENT OF PROFIT AND LOSS

For the Year Ended December 31, 2020

 

                            As of December 31, 2020  
(in € thousands)   Zegna
Historical
IFRS
    Zegna
Disposal
(AA)
    Adjusted
Zegna
IFRS
    Adjusted
IIAC
Historical
    Transaction
Accounting
Adjustments
          Pro Forma
Combined
 

Revenues

  1,014,733     (9,805   1,004,928     —       —         1,004,928  

Other income

    5,373       7       5,381       —         —           5,381  

Costs of raw materials and consumables

    (250,569     4,766       (245,803     —         —           (245,803

Costs for services

    (286,926     6,759       (280,168     (314     (34,270     AA       (314,752

Personnel costs

    (282,659     9,080       (273,579     —         (6,732     CC       (280,311

Depreciation, amortization and impairment of assets

    (185,930     (2,285     (188,215     —         —           (188,215

Write downs and other provisions

    (6,178     558       (5,620     —         (613     EE       (6,233

Other operating costs

    (30,399     1,696       (28,703     —         (72,579     BB       (134,194
    —         —         —         —         —           —    
    —         —         —         —         (32,912     DD       —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Profit/(loss) from operations

    (22,553     10,775       (11,779     (314     (147,106       (159,199

Other income/expenses:

             

Financial income

    34,352       8,907       43,259       —         —           43,259  

Financial expenses

    (48,072     851       (47,221     (817     (273     GG       (48,311

Exchange gains/(losses)

    13,455       20       13,475       —         —           13,475  

Income/(loss) from joint ventures and investments

    (4,205     58       (4,147     —         —           (4,147

Impairment of equity investments

    (4,532     —         (4,532     —         —           (4,532

Offering costs associated with warrant liabilities

    —         —         —         —         —           —    

Change in fair value of warrant liabilities

    —         —         —         (2,963     —           (2,963
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Income before taxes

    (31,555     20,612       (10,945     (4,094     (147,379       (162,418

Income taxes

    (14,983     (1,431     (16,414     —         —           (16,414
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Net income

  (46,538   19,181     (27,358   (4,094   (147,379     (178,832
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Weighted average shares outstanding of Class A ordinary shares

    —         —         —         39,697,368       —           —    

Basic and diluted net income per Class A ordinary share

    —         —         —       (0.08     —           —    

Weighted average shares outstanding of Class B ordinary shares

    —         —         —         9,148,438       —           —    

Basic and diluted net loss per Class B ordinary share

    —         —         —       (0.08     —           —    

Profit/(loss) attributable to parent company

  (50,577   19,236     (31,341   —       —         (182,815

Profit/(loss) attributable to non-controlling interest

  4,038     (55   3,983     —       —         3,983  

 

48


Table of Contents

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

1. Basis of Presentation

The unaudited pro forma condensed combined statement of financial position as of June 30, 2021 assumes that the Business Combination (including the PIPE Financing and the Offset PIPE Financing) occurred on June 30, 2021. The unaudited pro forma condensed combined statement of operations for the six months ended June 30, 2021 presents pro forma effect to the Business Combination (including the PIPE Financing and the Offset PIPE Financing), as if it had been completed on January 1, 2020. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2020 presents pro forma effect to the Business Combination (including the PIPE Financing and the Offset PIPE Financing), as if it had been completed on January 1, 2020. These periods are presented on the basis that the Company is the accounting acquirer.

The unaudited pro forma condensed combined statement of financial position as of June 30, 2021 has been prepared using, and should be read in conjunction with, the following:

 

   

Zegna’s unaudited condensed consolidated statement of financial position as of June 30, 2021 and the notes thereto, included in this prospectus and incorporated herein by reference; and

 

   

IIAC’s unaudited statement of financial position as of June 30, 2021 and the notes thereto, as filed on Form 10-Q/A on November 23, 2021.

The unaudited pro forma condensed combined statement of operations for the period ended June 30, 2021 has been prepared using, and should be read in conjunction with, the following:

 

   

Zegna’s unaudited condensed consolidated statement of profit and loss for the six months ended June 30, 2021 and the notes thereto, included in this prospectus and incorporated herein by reference; and

 

   

IIAC’s unaudited statement of profit and loss for the six months ended June 30, 2021 and the notes thereto, as filed on Form 10-Q/A on November 23, 2021.

The unaudited pro forma condensed combined statement of operations for the period ended December 31, 2020 has been prepared using, and should be read in conjunction with, the following:

 

   

Zegna’s consolidated statement of profit and loss for the year ended December 31, 2020 and the notes thereto, included in this prospectus and incorporated herein by reference; and

 

   

IIAC’s statement of profit and loss for the year ended December 31, 2020 and the notes thereto, included in this prospectus.

The historical financial statements of Zegna have been prepared in accordance with IFRS as issued by the IASB and in its presentation and reporting currency of the Euro (€). The historical financial statements of IIAC have been prepared in accordance with U.S. GAAP in its presentation and reporting currency of United States dollars ($). The financial statements of IIAC have been translated into Euros for the purposes of presentation in the unaudited pro forma condensed combined financial information using the following exchange rates (see Note 3—IFRS Policy and Presentation Alignment):

 

   

at the period end exchange rate as of June 30, 2021 of $1.00 to €0.8415 for the statement of financial position;

 

   

at the average exchange rate for the period from January 1, 2021 through June 30, 2021 of $1.00 to €0.8297 for the statement of profit and loss for the six months ended June 30, 2021; and

 

   

at the average exchange rate for the period from September 7, 2020 (inception) through December 31, 2020 of $1.00 to €0.8410 for the statement of profit and loss for the year ended December 31, 2020.

 

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IIAC entered into the IIAC Deal-Contingent Forward with a bank counterparty. The IIAC Deal-Contingent Forward is a purchase of €305 million with US Dollars at rates specified in the contract. Within the pro forma, the applicable rate under the IIAC Deal-Contingent Forward was used to convert US Dollars to Euros up to the limit of the contract, with any US Dollars to be converted above the limit of the contract converted at the balance sheet rate. The IIAC Deal-Contingent Forward rate of $1.19309 per €1.00 applied in the unaudited pro forma financial statements results in a payment of $363.9 million for €305 million.

The IIAC Deal-Contingent Forward meets the definition of a derivative, as it has an underlying and notional amount, no net investment, and can be net settled. Upon entering into the contract, the IIAC Deal-Contingent Forward will be recognized on the balance sheet at fair value with changes in fair value recognized through profit and loss. The IIAC Deal-Contingent Forward was entered into after June 30, 2021 and thus, was not reflected in the IIAC historical financial statements as of that date. In addition, the IIAC Deal-Contingent Forward has no impact on the pro forma statement of financial position as for purposes of the pro forma balance sheet the transaction is assumed to have taken place on the balance sheet date of June 30, 2021. Accordingly, the IIAC Deal-Contingent Forward is assumed to have been settled and derecognized. Accordingly, no pro forma adjustments have been made for the accounting of the IIAC Deal-Contingent Forward for the pro forma balance sheet.

In addition, in anticipation of the transactions contemplated by the Business Combination Agreement, on November 3, 2021, Zegna acquired the Deal-Contingent Option from a bank counterparty pursuant to which Zegna had the right, but not the obligation, to exchange $130 million for Euros at an exchange rate of $1.19 per Euro, contingent on the Closing of the Business Combination. Such exchange rate has been adjusted to account for the option premium. The Deal-Contingent Option was set to expire on January 14, 2022. The Deal-Contingent Option was intended to effectively hedge currency risk for the distribution of Euros by locking in the exchange rate of $1.1930 per Euro. Zegna paid a deal-contingent premium to acquire the option because the Closing occurred; however, because the Deal-Contingent Option was out of the money on the Closing Date, the option was not exercised.

Similar to the IIAC Deal-Contingent Forward entered into by IIAC, the Deal-Contingent Option meets the definition of a derivative, as it has an underlying and notional amount, no net investment, and can be net settled. Upon entering into the agreement to expiry, the Deal-Contingent Option will be recognized on the balance sheet at fair value with changes in fair value recognized through profit and loss. The Deal-Contingent Option was not entered into as of June 30, 2021 and was appropriately excluded from the Zegna historical financial statements as of that date. In addition, the Deal-Contingent Option has no impact on the pro forma balance sheet as the Deal-Contingent Option is assumed to have taken place on the balance sheet date of June 30, 2021 and accordingly the Deal-Contingent Option is assumed to have expired and been derecognized. Accordingly, no pro forma adjustments have been made for the accounting of the Deal-Contingent Option for the pro forma statement of financial position except for the payment of the premium.

Zegna entered into the Zegna Deal-Contingent Forward with a bank counterparty. The Zegna Deal-Contingent Forward is a sale of $130 million for Euros at a rate specified in the contract. Within the pro forma, the applicable rate under the Zegna Deal-Contingent Forward was used to convert US Dollars to Euros up to the limit of the contract, with any U.S. Dollars to be converted above the limit of the contract converted at the balance sheet rate. The Zegna Deal-Contingent Forward rate of $1.1314 per €1.00 applied in the unaudited pro forma financial statements results in a sale of $130 million for €115 million.

The Zegna Deal-Contingent Forward meets the definition of a derivative, as it has an underlying and notional amount, no net investment, and can be net settled. Upon entering into the contract, the Zegna Deal-Contingent Forward will be recognized on the balance sheet at fair value with changes in fair value recognized through profit and loss. The Zegna Deal-Contingent Forward was entered into after June 30, 2021 and thus, was not reflected in the Zegna historical financial statements as of that date. In addition, the Zegna Deal-Contingent Forward has no impact on the pro forma statement of financial position as for purposes of the pro forma balance sheet the

 

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transaction is assumed to have taken place on the balance sheet date of June 30, 2021. Accordingly, the Zegna Deal-Contingent Forward is assumed to have been settled and derecognized. Accordingly, no pro forma adjustments have been made for the accounting of the Zegna Deal-Contingent Forward for the pro forma balance sheet.

The adjustments presented in the unaudited pro forma condensed combined financial information have been identified and presented to provide relevant information necessary for an understanding of Zegna after giving effect to the Business Combination. Management has made significant estimates and assumptions in its determination of the pro forma adjustments. As the unaudited pro forma condensed combined financial information has been prepared based on these preliminary estimates, the final amounts recorded may differ materially from the information presented.

The pro forma adjustments reflecting the consummation of the Business Combination are based on certain currently available information and certain assumptions and methodologies that management believes are reasonable under the circumstances. The unaudited condensed pro forma adjustments, which are described in the accompanying notes, may be revised as additional information becomes available and is evaluated. Therefore, it is likely that the actual adjustments will differ from the pro forma adjustments and it is possible that the difference may be material. Zegna believes that its assumptions and methodologies provide a reasonable basis for presenting all of the significant effects of the Business Combination based on information available to management at this time and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma condensed combined financial information.

The unaudited pro forma condensed combined financial information is not necessarily indicative of what the actual results of operations and financial position would have been had the Business Combination taken place on the dates indicated, nor are they indicative of the future consolidated results of operations or financial position of the Combined Company. They should be read in conjunction with the historical financial statements and notes thereto of Zegna and IIAC.

The unaudited pro forma condensed combined financial information does not reflect the income tax effects of the pro forma adjustments as based on the statutory rate in effect for the historical periods presented. Zegna believes this unaudited pro forma condensed combined financial information to not be meaningful given the combined entity incurred significant losses during the historical period presented. Although Zegna incurred material income tax expenses on a consolidated basis during the 2020 financial year, such income tax expenses arose outside of Italy in profit-making subsidiaries of Zegna that generated taxable income. However, the Company incurred losses and generated taxable losses during the historical period in Italy. Given the nature of the transaction accounting adjustments, it is expected that the pro forma transaction accounting items would primarily arise in Italy or the United Kingdom and would result in an increase in taxable loss (or otherwise be tax neutral, generating neither a tax gain or income nor a tax loss). Given the losses incurred in Italy, the Company has not recognized a resulting income tax benefit in relation to the additional tax losses arising from the pro forma adjustments.

“Advisory and related services” provided to Zegna, other than VAT-exempt financing-related services, generally qualify as taxable supplies for purposes of Italian VAT, which is directly charged by Italian-based service providers to Zegna or generally subject to reverse charge by Zegna where the service provider is located outside of Italy. Italian VAT has been included for services other than exempt services (standard rate is 22%), and the relevant Zegna entity is assumed to be eligible for VAT recovery with respect to all or a portion of such amounts following the Business Combination.

“Advisory and related services” provided to IIAC, other than VAT-exempt financing-related services, generally qualify as taxable supplies for purposes of UK VAT, which is directly charged by UK-based service providers to IIAC. In contrast with the position for Zegna set out above, IIAC would not ordinarily be required to reverse charge UK VAT where the service provider is located outside of the UK, on the basis that IIAC is not carrying

 

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on business for UK VAT purposes. UK VAT has been included for services other than exempt services provided by UK-based service providers only and (again in contrast to the position for Zegna) is not expected to be eligible for UK VAT recovery following the Business Combination.

2. Disposal of Certain Zegna Businesses

The historical financial information of Zegna has been adjusted to give effect to the Disposition, including the Demerger. The Disposition and Demerger consist of the disposal, completed on November 1, 2021, of certain Zegna businesses through a statutory demerger under Italian law to a new company owned by Zegna’s then existing shareholders (being Monterubello and Ermenegildo Zegna di Monte Rubello) of (i) its real estate business, consisting of Zegna’s subsidiary E.Z. Real Estate S.r.l., which directly and indirectly holds substantially all of the real estate assets formerly owned by the Zegna group, as well as certain properties owned by Lanificio Ermenegildo Zegna e Figli S.p.A., including part of Lanificio Ermenegildo Zegna e Figli S.p.A.’s industrial building located in Valdilana and hydroelectric plants, and (ii) its 10% equity interest in Elah Dufour S.p.A. and certain related contractual rights and obligations and the Agnona Sale. This disposal also includes the impact of other contracts with E.Z. Real Estate S.r.l. and its subsidiaries in the future on Zegna’s expenses, as further described below.

Most of the real estate properties directly or indirectly owned by E.Z. Real Estate S.r.l. were, and continue to be, leased to Zegna, and accordingly, this transaction adjustment reflects the impact of such contracts in the future on Zegna’s expenses. Previously, such leases were between consolidated entities. Accordingly, the disposal adjustment to the historical financial information of Zegna includes the following:

 

   

the increase of right of use assets by €41.8 million as of June 30, 2021;

 

   

the increase of non-current lease liabilities by €40.6 million as of June 30, 2021;

 

   

the increase of current lease liabilities by €3.8 million as of June 30, 2021;

 

   

additional expense related to short term leases of €0.2 million for the six months ended June 30, 2021;

 

   

additional amortization of right of use assets of €4.0 million for the six months ended June 30, 2021; and

 

   

additional interest and financial charges for lease liabilities of €0.3 million for the six months ended June 30, 2021.

Additionally, the disposal adjustment includes a contractual amount of €1.5 million per year for incremental licensing expenses and other services.

3. IFRS Policy and Presentation Alignment

The historical financial information of IIAC has been adjusted to give effect to the differences between U.S. GAAP and IFRS as issued by the IASB for the purposes of the unaudited pro forma condensed combined financial information. The only adjustment required to convert IIAC’s financial statements from U.S. GAAP to IFRS for purposes of the unaudited pro forma condensed combined financial information was to reclassify Class A Shares subject to redemption to non-current financial liabilities under IFRS.

Further, as part of the preparation of the unaudited pro forma condensed combined financial information, certain reclassifications were made to align IIAC’s historical financial information in accordance with the presentation of Zegna’s historical financial information.

 

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IIAC’s historical financial statements have been adjusted to affect IFRS policy, presentation alignment and currency conversion as follows:

Adjustments to Unaudited Pro Forma Condensed Combined Statement of Financial Position as of June 30, 2021

 

(in thousands)   IIAC
Historical
U.S.
GAAP
USD
    Currency
Adjustment
    IIAC
Historical
U.S.
GAAP
EUR
    IFRS
Conversion
Adjustments
    Reclassification     After
Adjustment
 

Assets

           

Current Assets

           

Cash and cash equivalents

  $ 361       (57   304     —       —       304  

Prepaid expenses

    1,010       (160     850       —         (850     —    

Other current assets

    —         —         —         —         850       850  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Current Assets

    1,371       (217     1,154       —         —         1,154  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investments held in Trust Accounts

    402,512       (65,015     337,497       —         —         337,497  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Assets

  $ 403,883       (65,232   338,651     —       —       338,651  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities and Shareholders’ Equity

           

Current liabilities

           

Other current liabilities

  $ 58       (9   49     —       402     451  

Accrued expenses

    404       (64     340       —         (340     —    

Note payable - due to related party

    1,250       (198     1,052       —         —         1,052  

Due to related party

    74       (12     62       —         (62     —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    1,786       (283     1,503       —         —         1,503  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Deferred underwriting commissions

    14,088       (2,233     11,855       —         —         11,855  

Warrant liability

    20,921       (3,317     17,604       —         —         17,604  

Other liabilities

    —         —         —         338,691       —         338,691  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities

    36,795       (5,833     30,962       338,691       —         369,653  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commitments and Contingencies

           

Class A ordinary shares, $0.0001 par value; 500,000,000 at $10.00 per share authorized, 40,250,000 shares subject to possible redemption

    402,500       (63,809     338,691       (338,691     —         —    

Shareholders’ Equity

           

Preference shares, $0.0001 par value; 5,000,000 shares authorized; none issued and outstanding

    —         —         —         —         —         —    

Class A ordinary shares, $0.0001 par value; 500,000,000 shares authorized; 0 shares issued and outstanding

    —         —         —         —         —         —    

Class B ordinary shares, $0.0001 par value; 50,000,000 shares authorized; 10,062,500 shares issued and outstanding

    1       —         1       —         —         1  

Additional paid-in capital

    —         —         —         —         —         —    

Accumulated deficit

    (35,413     4,410       (31,003     —         —         (31,003
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total shareholders’ equity

    (35,412     4,410       (31,002     —         —         (31,002
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity attributable to non-controlling interest

    —         —         —         —         —         —    

Total equity

    (35,412     4,410       (31,002     —         —         (31,002
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities and Shareholders’ Equity

  $ 403,883       (65,232   338,651     —       —       338,651  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Adjustments to the Unaudited Pro Forma Condensed Combined Statement of Profit and Loss for the Six Months Ended June 30, 2021

 

(in thousands, except share and per share data)   IIAC
Historical
US
GAAP
USD
    Currency
Adjustment
    IIAC
Historical
IFRS
EUR
    Reclassification     After
Adjustment
 

Revenues

  $ —         —       —         —       —    

Other Income

    —         —         —         —         —    

Purchased, outsourced, and other costs

    —         —         —         (772     (772

General and administrative expenses

    (930     158       (772     772       —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit/(loss) from operations

    (930     158       (772     —         (772

Other income/expenses:

         

Financial income

    —         —         —         —         —    

Financial expenses

    —         —         —         —         —    

Offering costs associated with warrant liabilities

    —         —         —         —         —    

Dividend income on investment held in Trust Account

    12       (2     10       —         10  

Change in fair value of warrant liabilities

    8,449       (1,439     7,010       —         7,010  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before taxes

    7,531       (1,283     6,248       —         6,248  

Income taxes

    —         —         —           —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 7,531       (1,283   6,248     —       6,248  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding of Class A ordinary shares

    40,250,000             40,250,000  

Basic and diluted net income per ordinary share

  $ 0.15           0.12  

Weighted average shares outstanding of Class B ordinary shares

    10,062,500             10,062,500  

Basic and diluted net loss per ordinary share

  $ 0.15           0.12  

Adjustments to the Unaudited Pro Forma Condensed Combined Statement of Profit and Loss for the Year Ended December 31, 2020

 

(in thousands, except share and per share data)   IIAC
Historical
US
GAAP
USD
    Currency
Adjustment
    IIAC
Historical
IFRS
EUR
    Reclassification     After
Adjustment
 

Revenues

  $ —         —       —         —       —    

Other Income

    —         —         —         —         —    

Purchased, outsourced, and other costs

    —         —         —         (314     (314

General and administrative expenses

    (374     60       (314     314       —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit/(loss) from operations

    (374     60       (314     —         (314

Other income/expenses:

         

Financial income

    —         —         —         —         —    

Financial expenses

    —         —         —         (817     (817

Offering costs associated with warrant liabilities

    (972     155       (817     817       —    

Change in fair value of warrant liabilities

    (3,523     560       (2,963     —         (2,963
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before taxes

    (4,869     775       (4,094     —         (4,094

Income taxes

    —         —         —           —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ (4,869     775     (4,094   —       (4,094
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding of Class A ordinary shares

    39,697,368             39,697,368  

Basic and diluted net income per ordinary share

  $ (0.10         (0.08

Weighted average shares outstanding of Class B ordinary shares

    9,148,438             9,148,438  

Basic and diluted net loss per ordinary share

  $ (0.10         (0.08

 

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4. Adjustments to Unaudited Pro Forma Condensed Combined Financial Information

The following unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X.

The pro forma notes and adjustments, based on preliminary estimates that could change materially as additional information is obtained, are as follows:

 

  (A)

Reflects the reclassification of €337.5 million ($401.1 million) of investments held in the trust account of IIAC to cash and cash equivalents that becomes available following the Business Combination. The amount in the trust account of IIAC was converted from USD to EUR at the IIAC Deal-Contingent Forward rate of €1.00 to $1.19309 up to the €305 million stated in the contract. The remainder was converted from USD to EUR at a rate of $1.00 to €0.8415 (€1.00 to $1.1884).

 

  (B)

Reflects the reclassification of €338.7 million ($402.5 million) Class A Shares subject to redemption, with a nominal value of $0.0001, from liabilities to equity. Prior to the Business Combination, holders of Class A Shares had the ability to redeem their shares for cash and, as a result, these shares were not reclassified but were rather derecognized. Reflects actual shareholder redemption of 23,368,841 Class A Shares with a nominal value of $0.0001, for aggregate redemption payments of €196.6 million ($233.7 million) at a redemption price of approximately €8.42 per share ($10.00 per share).

 

  (C)

Reflects the actual proceeds of €191.8 million ($227.9 million at $1.00 per €0.8415) received from the issuance and sale of 22,500,000 Class A Shares at €8.52 per share (equal to $10.13 per share at $1.00 per €0.8415, the applicable exchange rate used in this unaudited pro forma condensed combined financial information), with a nominal value of $0.0001, pursuant to the terms of the Forward Purchase Agreement. The amendment of the Forward Purchase Agreement, which changed the settlement currency from US Dollars to Euros, resulted in the reclassification of the instrument from equity to liability at its fair value for periods after the amendment; however, the timing of the amendment results in no pro forma adjustment because the liability was settled on the Closing Date.

 

  (D)

Reflects the settlement of €11.9 million ($14.1 million) in deferred underwriting commissions as a reduction of Cash and cash equivalents with a corresponding decrease to Deferred underwriting fee payable.

 

  (E)

Reflects the elimination of IIAC historical retained earnings of €31.0 million ($36.8 million).

 

  (F)

Reflects the one for one exchange of 39,381,159 Class A Shares and 10,062,500 Class B Shares for 49,443,659 Ordinary Shares, with a nominal value of €0.02.

 

  (G)

Reflects the share split of 4,300,000 Ordinary Shares, of which 100,000 were in treasury, into 215,000,000 Ordinary Shares, of which 5,000,000 are in treasury (subsequently assigned to shareholders of IIAC in connection with the Merger).

 

  (H)

Reflects the proceeds of €210.6 million ($250.3 million) received from the issuance and sale of 25,000,000 Ordinary Shares at €8.42 per share ($10.01 per share), with a nominal value of €0.02, in the PIPE Financing pursuant to the terms of the PIPE Subscription Agreements.

 

  (I)

Reflects the payment of transaction costs incurred by Zegna of approximately €51.7 million ($61.5 million) excluding underwriting fees reflected in note (D) above, as shown in the table below. Direct, incremental costs related to the Business Combination are presented as a reduction to Retained Earnings according to the proportion of shares to be held by legacy Zegna Shareholders, and the remainder is capitalized in share premium as an adjustment to additional paid in capital. Out of total transactions costs of €63.6 million ($75.6 million), €17.0 million ($20.3 million) are reflected in equity. Other expenses of approximately €2.4 million ($2.9 million) are not capitalized and are reflected as an adjustment to accumulated deficit in the unaudited pro forma condensed combined statement of financial position.

 

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million
     $
million
 

Fundraising fees

   4.1      $ 4.9  

Professional fees

     18.5        21.9  

Legal and professional expenses

     23.8        28.3  

Other fees

     5.3        6.4  

Underwriting fees

     11.9        14.1  
  

 

 

    

 

 

 

Total Transaction Costs

   63.6      $ 75.6  

 

  (J)

Reflects the recognition of €34.1 million ($40.5 million) in additional paid-in capital as a result of the issuance of 5,031,250 Ordinary Shares to the holders of Class B Shares to be held in escrow as Escrowed Shares. The release of shares from the escrow will be subject to attainment of certain targets within a seven-year period, as further described under “Shares Eligible For Future Sale—Escrowed Shares”. Because the business combination is within the scope of IFRS 2, and will ultimately be settled through the release of the Company’s own equity instrument, the receipt of the Escrowed Shares will be treated as an equity-settled transaction and recognized in equity with an offset in accumulated deficit as additional deemed listing costs. A preliminary valuation assessment was performed for the purpose of determining an estimate of the equity instrument using a Monte Carlo simulation using key assumptions for: volatility; risk-free rate; and closing share price:

 

Closing Share Price

   $ 10.14  

Volatility

     35.00

Risk-Free Rate

     0.67

The closing price per share has a direct impact on the fair value of the Escrowed Shares because the Escrowed Shares will vest upon achieving the thresholds within seven years.

 

  (K)

Reflects the write-off of non-refundable prepaid premiums for directors’ and officers’ insurance, which lapsed on the Closing Date.

 

  (L)

Represents the preliminary estimated expense recognized for the service of listing. As discussed in Accounting for the Business Combination, IIAC does not meet the definition of a “business” pursuant to IFRS 3; therefore, the transaction is accounted for under IFRS 2. The excess of the fair value of Ordinary Shares issued and the fair value of IIAC’s identifiable net assets at the date of the Business Combination is treated as a share-based payment for listing services, resulting in a €74.9 million ($89.0 million) increase to accumulated loss. A significant portion of this listing expense results from the difference between the fair value of the Zegna shares to be issued in exchange for IIAC Class B shares and the amount contributed by the IIAC Sponsor in respect of such shares. The stock-based compensation is calculated as follows:

 

     Shares      In
thousands
 

IIAC Class A Shares

     16,881,159     

Class A FPA Shares (to be issued to purchaser)

     22,500,000     

IIAC Class B Shares

     5,031,250     

Total Company Ordinary Shares to be issued to IIAC Shareholders

     44,412,409     

Fair Value of shares issued in consideration for combination (at an assumed market value of $10.14 per share)

      $

450,342

378,948

 

 

      $ 361,343  

Net assets (liabilities) of IIAC at June 30, 2021

      302,855  
      $ 88,999  

Difference—IFRS 2 charge for listing services

      74,889  
     

 

 

 

 

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     USD 000      EUR 000  

Adjusted Historical IIAC

     

Total assets

   $ 403,883        338,651  

Redemptions

     (233,688      (196,641

Total current liabilities

     (1,786      (1,503

Deferred underwriting commissions

     (14,088      (11,855

Warrant liability

     (20,921      (17,604

Cash from FPA purchase

     227,943        191,807  
  

 

 

    

 

 

 

Net Assets (liabilities) of IIAC at June 30, 2021

   $ 361,343      302,855  
  

 

 

    

 

 

 

The fair value of shares issued was estimated based on €8.53 per share ($10.14 per share).

 

  (M)

Reflects the premium paid by Zegna to enter into the Deal-Contingent Option.

 

  (N)

Reflects the proceeds of €110.5 million ($131.3 million) received from the issuance and sale of 12,500,000 Ordinary Shares at €10.00 per share ($10.00 per share), with a nominal value of €0.02, to the Offset PIPE Investors.

 

  (O)

The Share Repurchase column of the transaction adjustments reflects the Share Repurchase, whereby at the Closing, promptly following the capital distribution, Zegna repurchased 54,600,000 Ordinary Shares from Monterubello, Zegna’s controlling shareholder, in exchange for the Cash Consideration. This structure, funded by a capital distribution of IIAC’s cash and potentially by part of the proceeds of the PIPE Financing, was intended to achieve the same result that would have been achieved in a cash/stock merger or in a traditional initial public offering through the sale of shares by selling shareholders. The Share Repurchase is not intended to be treated as a distribution of the earnings of Zegna. It is an equity transaction that was intended to reduce the interest of Monterubello in Zegna (the holder of approximately 97.3% of the outstanding Zegna shares immediately prior to the Closing of the Business Combination) and increase the relative equity stake of the new Zegna shareholders following the Closing.

Adjustments to Unaudited Pro Forma Condensed Combined Statement of Operations for the Six Months Ended June 30, 2021 and the Year Ended December 31, 2020

The pro forma notes and adjustments, based on preliminary estimates that could change materially as additional information is obtained, are as follows:

 

  (AA)

Reflects the transaction costs of €34.3 million ($42.1 million) for the year ended December 31, 2020 paid on the Closing of the Business Combination that are either (a) related to the listing of shares held by legacy Zegna Shareholders or (b) not direct and incremental to the issuance of new equity. These costs are a nonrecurring item.

 

  (BB)

Represents the preliminary estimated expense recognized, in accordance with IFRS 2, for the excess of the fair value of Ordinary Shares issued and the fair value of IIAC’s identifiable net assets at the date of the Business Combination of €72.6 million ($86.3 million). These costs are a nonrecurring item.

 

  (CC)

Reflects the expense recognition for the issuance of 900,000 Ordinary Shares to management subject to vesting conditions, with a nominal value of €0.02 and an assumed fair value of €6.64 ($7.89) per share in one tranche and €5.62 ($6.77) per share in the second tranche, and 600,000 Ordinary Shares to senior management subject to certain vesting conditions as further described under “Compensation—Historical Compensation for the 2021 Financial Year—IPO Performance Bonus”, with a nominal value of €0.02 and an estimated fair value of €6.27 ($7.46) per share in one tranche and €5.26 ($6.34) per share in the second tranche, to certain Zegna executives for services rendered to Zegna.

 

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  (DD)

Reflects the deemed listing costs associated with escrow of 5,031,250 shares, accounted for as an equity-settled share-based payment. Refer to adjustment J for more information on the Escrowed Shares.

 

  (EE)

Reflects the write-off of non-refundable prepaid premiums for directors’ and officers’ insurance, which lapsed upon the Closing Date.

 

  (FF)

Represents an adjustment to eliminate dividend income on investments held in trust account of IIAC in the amount of €0.10 million ($0.12 million) for the six months ended June 30, 2021.

 

  (GG)

Reflects the expense recognized for the premium paid by Zegna to enter into the Deal-Contingent Option.

5. Net Loss per Share

Pro forma basic and diluted net loss per share is calculated using the historical weighted average shares outstanding and the issuance of additional shares in connection with the Business Combination and related transactions, assuming the shares were outstanding since January 1, 2020. As the Business Combination and related transactions are being reflected as if they had occurred at the beginning of the period presented, the calculation of weighted average shares outstanding for basic and diluted net loss per share assumes that the shares issued in connection with the Business Combination have been outstanding for the entire period presented and is retroactively adjusted to eliminate the number of shares redeemed for the entire period. The Company has not considered the effect of (a) the warrants to purchase an aggregate of 20,116,667 Class A Shares, (b) the 5,031,250 Escrowed Shares, or (c) the grant to management of shares subject to vesting conditions in the calculation of diluted net loss per ordinary share, because their inclusion would be anti-dilutive under the treasury stock method.

The following table summarizes the number of Ordinary Shares outstanding (excluding the Escrowed Shares from the computation of Ordinary Shares outstanding) for the six months ended June 30, 2021 and the year ended December 31, 2020:

 

     For the
six months ended
June 30, 2021
 

Pro forma profit attributable to parent company (in thousands)

   30,916  

Basic weighted average shares outstanding

     237,312,409  

Basic earnings per share

   0.13  

Diluted weighted average shares outstanding

     238,246,959  

Diluted earnings per share

   0.13  
     For the
six months ended
June 30, 2021
 

Weighted average shares calculation, basic and diluted

  

Zegna Shareholders(1)(2)

     155,400,000  

IIAC Public Shareholders

     16,881,159  

IIAC Sponsor(3)

     27,531,250  

PIPE Investors

     25,000,000  

Management Grants

     —    

Offset PIPE Investors

     12,500,000  
  

 

 

 

Basic weighted average shares outstanding

     237,312,409  

Zegna dilutive shares

     934,550  
  

 

 

 

Diluted weighted average shares outstanding

     238,246,959  

 

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     For the year
ended
December 31,
2020
 

Pro forma loss attributable to parent company (in thousands)

   (182,815

Weighted average shares outstanding, basic and diluted

     237,312,409  

Loss per share, basic and diluted

   (0.77

Weighted average shares calculation, basic and diluted

  

Zegna Shareholders(1)(2)

     155,400,000  

IIAC Public Shareholders

     16,881,159  

IIAC Sponsor(3)

     27,531,250  

PIPE Investors

     25,000,000  

Offset PIPE Investors

     12,500,000  
  

 

 

 
     237,312,409  
(1)

Excludes shares issued to certain Zegna Shareholders in connection with the PIPE Financing or as management grants.

(2)

Includes the 54,600,000 Ordinary Shares repurchased from Monterubello in exchange for the Cash Consideration.

(3)

Includes shares issued to the IIAC Sponsor, to the FPA Purchaser and to the other IIAC Initial Shareholders but excludes (i) shares issued to them in connection with the PIPE Financing and (ii) the Escrowed Shares, which are subject to release if certain targets are attained, as further described under “Shares Eligible For Future Sale—Escrowed Shares.”

 

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BUSINESS

Overview of the Business

We are a leading global luxury group, internationally recognized for the distinctive heritage of craftsmanship, quality and design associated with our Zegna and Thom Browne brands and the noble fabrics and fibers of our in-house luxury textile and knitwear business. Since our foundation in 1910, we have expanded beyond our luxury textile production to ready-to-wear products and accessories to become a highly recognized luxury lifestyle group. We design, manufacture, market and distribute luxury menswear, footwear, leather goods and other accessories under the Zegna and the Thom Browne brands, and luxury womenswear and childrenswear under the Thom Browne brand. Our product range is complemented by eyewear, cufflinks and jewelry, watches, underwear and beachwear manufactured by third parties under licenses. Our business covers the entire value chain as a result of our design, manufacturing and distribution business. Our goal is to provide customers with excellent products that reflect our tradition of fine craftsmanship with exclusive design content and with a style that preserves the exceptional manufacturing quality we are known for, through the sourcing of superior raw materials, the careful finish of each piece, and the way they are delivered to our customers.

In 2020, 2019 and 2018, we recorded revenues of €1,014,733 thousand, €1,321,327 thousand and €1,182,563 thousand, respectively, (Loss)/profit for the year of (€46,540) thousand, €25,439 thousand, and €40,514 thousand, respectively and Adjusted EBIT of €20,013 thousand, €107,274 thousand and €105,268 thousand, respectively. For the six months ended June 30, 2021 and 2020, we recorded revenues of €603,340 thousand and €402,386 thousand, respectively, Profit/(loss) for the period of €32,234 thousand and (€87,755) thousand, respectively, and Adjusted EBIT of €66,813 thousand and (€51,981) thousand, respectively. For additional information regarding Adjusted EBIT, which is a non-IFRS measure, including a reconciliation of Adjusted EBIT to profit/(loss), see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-IFRS Financial Measures—Adjusted EBIT.”

We operate our business in two segments: the Zegna segment (comprising three product lines: Zegna Branded Products, Textile and Strategic Alliances) and the Thom Browne segment. Before the deconsolidation of the Agnona business in January 2021, we were also active in the luxury womenswear business through the Agnona product line of the Zegna segment.

With respect to the Zegna Branded Products product line and Thom Browne segment, we operate via our direct-to-consumer or DTC channel worldwide through our network of 239 Zegna and 45 Thom Browne DOSs as of June 30, 2021 (255 Zegna DOSs (prior to the transformation of 17 DOSs in Korea into franchised stores) and 38 Thom Browne DOSs as of December 31, 2020). We also distribute our products worldwide through monobrand or multibrand points of sale operated by our wholesale customers. Taking into account our DTC channel and our wholesale distribution channel, we are present in approximately 80 countries worldwide. Our DTC channel includes monobrand boutiques and outlets, as well as concessions in department stores and multibrand e-commerce marketplaces. In our wholesale channel, we sell our products to franchisees, department stores, multibrand specialty stores and online multi-brand e-tailers.

The activities of the Textile product line and Strategic Alliances product line follow their own operational phases and logics. Through the Textile product line, we sell our fabrics both to other product lines of the Zegna segment or to the Thom Browne segment, and to third party customers. Through the Strategic Alliances product line, we are engaged in the manufacturing and distribution or the supply of menswear to other fashion brands.

 

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The following tables show our consolidated revenues for the six months ended June 30, 2021 and 2020, and for the years ended December 31, 2020, 2019 and 2018, and provide a split by geographic area and segment.

 

     For the six months
ended June 30,
     Increase/(Decrease)  
(Euro thousands, except percentages)    2021      2020      2021 vs 2020      %  

EMEA(1)

     182,531        132,368        50,163        37.90

of which Italy

     84,682        51,272        33,410        65.20

of which UK

     14,295        14,662        (367      (2.50 )% 

North America(2)

     70,701        55,742        14,959        26.80

of which United States

     65,074        50,483        14,591        28.90

Latin America(3)

     7,118        3,598        3,520        97.80

APAC(4)

     340,875        208,891        131,984        63.20

of which Greater China Region

     288,571        159,357        129,214        81.10

of which Japan

     24,501        26,950        (2,449      (9.10 )% 

Other(5)

     2,115        1,787        328        18.40

Total

     603,340        402,386        200,954        49.90

 

(1)

EMEA includes EU countries, the United Kingdom, Switzerland, the countries of the Balkan Peninsula, Eastern Europe countries and Scandinavian countries not belonging to the EU, Russia, former Soviet Republics, Turkey, Middle Eastern countries and Africa.

(2)

North America includes the United States of America and Canada.

(3)

Latin America includes Mexico, Brazil and other Central and South American countries.

(4)

APAC includes the Greater China Region, Japan, South Korea, Thailand, Malaysia, Vietnam, Indonesia, Philippines, Australia, New Zealand, India and other Southeast Asian countries.

(5)

Other revenues mainly include royalties and certain sales of old season products.

 

                          Increase/(Decrease)  
     Years ended December 31,      2020 vs. 2019     2019 vs. 2018  
(€ thousand, except percentages)    2020      2019      2018      % Actual     % Actual  

EMEA(1)

     315,879        431,384        397,606        (26.8 )%      8.5

of which Italy

     121,202        140,676        95,692        (13,8 )%      47,0

of which United Kingdom

     32,985        58,012        55,877        (43.1 )%      3.8

North America(2)

     131,049        233,327        215,682        (43,8 )%      8.2

of which United States

     114,818        205,744        193,630        (44,2 )%      6.3

Latin America(3)

     12,915        25,404        24,806        (49.2 )%      2.4

APAC(4)

     551,650        626,059        540,689        (11.9 )%      15.8

of which Greater China Region

     438,193        458,294        404,763        (4,4 )%      13.2

of which Japan

     61,523        90,240        71,881        (31.8 )%      25.5

Other(5)

     3,240        5,153        3,780        (37,1 )%      36.3

Total

     1,014,733        1,321,327        1,182,563        (23.2 )%      11.7

 

(1)

EMEA includes EU countries, United Kingdom, Switzerland, the countries of the Balkan Peninsula, Eastern Europe countries and Scandinavian countries not belonging to EU, Russia, former Soviet Republics, Turkey, Middle Eastern countries and Africa.

(2)

North America includes the United States of America and Canada.

(3)

Latin America includes Mexico, Brazil and other Central and South American countries.

(4)

APAC includes Greater China Region, Japan, South Korea, Thailand, Malaysia, Vietnam, Indonesia, Philippines, Australia, New Zealand, India and other South East Asian countries.

(5)

Other includes royalties fees, certain sales of old seasons products, and exchange rate impact deriving from hedging transactions on revenues.

 

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     For the six months
ended June 30,
 
(Euro thousands, except percentages)    2021      2020  

Zegna segment

     465,899        342,324  

Thom Browne segment

     142,553        63,198  

Eliminations

     (5,112      (3,136

Total

     603,340        402,386  

 

     Years ended December 31,  
( thousand, except percentages)    2020      2019      2018  

Zegna segment

     843,318        1,165,911        1.163,519  

Thom Browne segment

     179,794        161,200        19,059  

Eliminations

     (8,379      (5,784      (15

Total

     1,014,733        1,321,327        1,182,563  

History

Ermenegildo Zegna N.V., a Dutch public limited liability company (naamloze vennootschap), results from the cross-border conversion whereby, on the Closing Date of the Business Combination, Ermenegildo Zegna Holditalia S.p.A., an Italian joint stock company (società per azioni), transferred its legal seat from Italy to the Netherlands and amended its articles of association. Ermenegildo Zegna N.V. is the parent company of the Zegna group and is named after our founder Ermenegildo Zegna (the grandfather of our Chief Executive Officer), who started his business in the Northern Italian town of Trivero in 1910 with the dream of creating the most beautiful and luxurious fabrics in the world.

Zegna & Giardino snc was initially formed by Ermenegildo together with his brothers Edoardo and Mario and Mr. Costanzo Giardino Vitri as an Italian società in nome collettivo (general partnership) to produce high-quality fabrics utilizing the Zegna brothers’ wool mill and looms. In 1915, upon the exit of Mr. Giardino Vitri, the company was renamed Fratelli Zegna di Angelo snc. Shortly thereafter, Edoardo Zegna also left the company.

The company sourced the best quality natural fibers directly from their countries of origin, imported them to Italy to be expertly woven, and subsequently exported these luxury fabrics worldwide. In the late 1920s, the wool mill employed more than 700 workers, growing to more than 1,000 in the late 1940s. In 1938, the company began to export fabrics in the United States through its subsidiary Zegna Woollens Corporation.

Our founder’s vision, which continues to inspire and guide our business today, was that product quality can only flourish when there is a culture of beauty that must also respect the environment and the well-being of local communities. With that goal in mind, our founder built facilities including a swimming pool, a school, a hospital and a road in order to enrich the lives of people in his town. He also launched an extensive reforestation project in the hills surrounding the Lanificio wool mill, expanded over the course of the years and now known as “Oasi Zegna.”

In 1941, Fratelli Zegna di Angelo snc was dissolved by mutual agreement of our founder Ermenegildo Zegna and his brother Mario, and Ermenegildo formed a new company named Lanificio Fratelli Zegna di Angelo di Ermenegildo Zegna snc (later renamed Lanificio Ermenegildo Zegna – Trivero). The company was dissolved in 1944, when Ermenegildo Zegna and his son Aldo formed Lanificio Ermenegildo Zegna & Figli snc. In 1945, Ermenegildo’s son Angelo entered this partnership. In the mid-1960s, Ermenegildo’s sons Aldo and Angelo took over the partnership. Under their guidance, the label expanded its business to ready-made suits and established new plants and distribution networks abroad. In 1968, the first factory producing sleeve-units and trousers was opened in Novara, Italy, followed by factory openings in Spain, Greece, and Switzerland. Sales and marketing departments were also established in France, Germany, the United Kingdom and the United States.

 

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In 1972, Zegna launched its made-to-measure service called “Su Misura.”

Zegna’s brand internationalization strategy continued with the opening of Zegna’s first boutique in Paris (1980), followed by boutiques in Milan (1985), London (1987), Tokyo (1989), Beijing (1991) and Hong Kong (1993), making Ermenegildo Zegna one of the first luxury brands to expand to Greater China.

Lanificio Ermenegildo Zegna e Figli S.a.s. converted into a joint stock company on July 1, 1984, taking the name of Ermenegildo Zegna Holditalia S.p.A.

Between 1979 and the 1990s, the third generation of the Zegna family entered the business. In 1998, Angelo’s son, Ermenegildo “Gildo” Zegna, and Aldo’s son, Paolo, became the co-Chief Executive Officers. In 2006, Ermenegildo “Gildo” Zegna became the sole Chief Executive Officer and Paolo Zegna was elected Chairman. Under their leadership, Zegna began a strategy of brand extension, both organically and with M&A activity, and full verticalization.

Zegna entered the luxury womenswear business in 1999 by acquiring the Italian brand Agnona. The Agnona business was later deconsolidated with the sale in January 2021 of a 70% interest. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further information.

In 2009, Zegna acquired the business of Tessitura di Novara, which specialized in the production of silk. In 2014, Zegna acquired a majority equity interest in Achill, an Australian wool farm of 2,500 hectares (approximately 6,175 acres), home to about 10,000 Merino sheep in its flock. Achill was demerged on November 1, 2021 prior to the completion of the Business Combination and is now majority owned by Monterubello, but Zegna is expected to continue to source raw materials from the wool farm.

In 2016, Zegna acquired a majority stake in Bonotto, a high-end textile manufacturer based in Molvena, Italy, expanding Zegna’s presence into new areas such as furnishing and experimental fabrics.

In 2018, Zegna acquired an 85% interest in Thom Browne, a leading and fast growing luxury brand focused on high-end menswear and womenswear. Zegna subsequently acquired an additional 5% interest in Thom Browne in June 2021. Under a put option agreement between Zegna and Mr. Thom Browne, Mr. Thom Browne has the right, but not the obligation, to sell to Zegna up to 550.9674 shares of common stock of Thom Browne Inc. (representing the remaining 10% interest in the company held by Mr. Thom Browne) over the period between 2024 and 2030 (subject to potential deferral until 2032). In 2018, Zegna also acquired Cappellificio Cervo, a historic hatmaker in Biella, Italy with over 150 years of history.

In 2019, Zegna acquired a 65% interest in Dondi, an Italian high-end jersey fabrics manufacturer, enhancing Zegna’s control over its textile supply chain.

In the last two decades, Zegna has also expanded its presence in adjacent luxury markets thanks to partnerships with recognized leaders. In 1999, Zegna entered into a license agreement with Tateossian for the manufacturing and distribution of Zegna-branded cufflinks and jewelry. In 2011, Zegna signed a worldwide licensing agreement with Estée Lauder for the Ermenegildo Zegna fragrance line, with the latest collection launched in 2019 and a new collection scheduled to launch starting in the fourth quarter of 2021. Since 2013, Zegna has partnered with Italian luxury vehicle manufacturer Maserati to produce customized interiors, as well as several collections of leather goods, travel-friendly clothing and personal accessories. In 2014, Zegna entered into a ten-year licensing agreement with the Marcolin Group for the manufacture of Zegna-branded luxury eyewear. In 2016 and 2017 respectively, Zegna entered into an exclusive license agreement for underwear and beachwear with Isaseta.

During 2021, Zegna further strengthened its presence in the textiles business with the acquisition of a 60% stake in Tessitura Ubertino, a business specialized in high-end fabrics for women based in Pratrivero, Italy, and a

 

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40% stake in Filati Biagioli Modesto, a business specialized in the production of carded yarns based in Montale, Italy. Concurrently with Zegna’s acquisition, the Prada Group also acquired a 40% stake in Filati Biagioli Modesto.

On December 17, 2021, in connection with the Business Combination, Ermenegildo Zegna Holditalia S.p.A. (an Italian Società per Azioni) changed its legal form to a Dutch public limited liability company (naamloze vennootschap) and assumed its current legal name Ermenegildo Zegna N.V. On the same day, Zegna completed the Business Combination with IIAC as described in “About this Prospectus”.

Competitive Strengths

We believe that the following key competitive strengths have been the primary drivers of our historic success and will continue to be the pillars of our growth strategy.

Heritage and Sustainability at the Core. Since its foundation over 110 years ago, Zegna has been synonymous with quality and style for men. We believe that our brands and products enjoy strong visibility and an established reputation in the market associated with style, quality and innovation. Born as a fabric maker, Zegna has grown into a worldwide luxury lifestyle group for formalwear and luxury leisurewear, that today over 100 years later remains controlled by the Zegna family. We are rooted in an authentic history: our founder’s vision and business gene has been passed down through the generations, ensuring that the Zegna brand guarantees his legacy based on a sustainable business where giving back, responsibility towards the environment and community well-being are key to the brand development. An expression of this vision is the so called “Oasi Zegna,” a freely accessible natural reserve covering approximately 100 square kilometres from Trivero to the peaks of the Biella Alps in Italy, created by our founder over 100 years ago and rebranded “Oasi Zegna” in 1993 with the goal of fostering a positive relationship with the local territory and the community by creating a lasting environment for the public to enjoy. Oasi Zegna has been and continues to be an important source of inspiration for our collections. While Oasi Zegna was disposed of prior to the closing of the Business Combination as part of the Disposition, we will continue to further develop the existing mutually inspiring relationship with Oasi Zegna. At Zegna, sustainability has been part of our ethos since inception. It is as much part of our DNA and history as the quality of our clothes. This carries over into everything that we do, from the technology we use to create our products to the constant dialogue we have with our customers and suppliers.

Made in Italy Luxury Laboratory Platform. We benefit from a full verticalization of the supply chain through our historical Lanificio Zegna as well as our recent acquisitions of Dondi, Bonotto, Tessitura Ubertino and Filati Biagioli Modesto. Our in-house laboratory platform allows us to focus on innovation and research of the finest and highest performing fabrics, but also to leverage a modular approach to the manufacturing process depending on production needs, giving us high flexibility and efficiency. Through our long-term relationships with our suppliers, we enjoy privileged access in the procurement of the finest fibers and fabrics and we are able to ensure enhanced traceability and quality control of the raw materials. Thanks to our experienced in-house teams, our personnel dedicated to research and development (approximately 250 employees currently) and our leading technological capabilities, we are able to manage the entire production process throughout the various stages, either in-house or through our network of trusted, long standing external manufacturers. The excellence of our output is the reason why we not only serve the needs of our proprietary brands Zegna and Thom Browne, but also a number of top luxury players, which rely on us to supply top quality products.

Global Group and Pioneer in Greater China. We are a world leading luxury leisurewear and formalwear brand with a strong international footprint. In 2020, we recorded 54.4% of our consolidated revenues in APAC, 31.1% in EMEA, 12.9% in North America and 1.3% in Latin America. A key to our success has been our presence and the force of our brand in Greater China, where we have operated directly since the 1990s. The Greater China market, particularly for luxury consumer goods, has grown at an extraordinary pace in the last two decades, a trend that we expect to continue. We believe that our longstanding experience in this region makes us optimally positioned to operate there thanks to our knowledge of the relevant market, market penetration and awareness of our brands by consumers in Greater China.

 

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A Platform For Growth in the Luxury Space. We have the skills and experience to act as a long-term industrial partner. Our in-house laboratory platform, full verticalization of the supply chain, primary knowledge of the Greater China market and leading technological capabilities, coupled with scalability and industrial and retail expertise, allow us to add value to the businesses we partner with. A prominent example of this is the performance of Thom Browne following our acquisition in 2018, with revenues growing from €117 million in 2018 to €180 million before eliminations in 2020.

Experienced Management Team Combining Family and Outside Talent. Our management team combines both representatives of the Zegna family such as our Chairperson and Chief Executive Officer Ermenegildo “Gildo” Zegna, and outside talent such as Mr. Alessandro Sartori, who is in charge of Zegna’s creative process, and Mr. Thom Browne, the Founder and Chief Creative Officer of Thom Browne. Our managers have long-standing experience in the luxury fashion market and a deep understanding of market dynamics and evolution.

Strategy

We intend to maintain and extend our leading position in the luxury fashion market and to continue to protect and enhance the value and exclusivity of our brands. We also aim to achieve profitable growth by pursuing the following strategies.

Luxury Leisurewear. In recent years, our apparel offer has shifted towards more versatile and technical luxury leisurewear for men in order to meet the needs of a fast-paced world. The evolution from pure formalwear is our new definition of men’s style that we call “luxury leisurewear,” a new, versatile wardrobe that combines performance and comfort without compromising quality to become a fundamental part of our design philosophy moving forward. Sales of outerwear, knitwear and jersey have been increasing significantly in recent years.

We intend to continue to consolidate the shift toward luxury leisurewear and this new style approach with a focus on categories of products meeting the changing habits and preferences of our customers and their demand for greater comfort and a modern aesthetic. We believe that this trend will also allow us to expand our reach to a broader, younger client base.

Create New Iconic Products and Attract New Customers. We intend to continue to launch new products, in particular focusing on iconic products that can be visually recognized and offer superior growth, as in the case of our Triple Stitch shoes, while continuing to preserve the exceptional quality we are known for. We believe that there are significant opportunities to capitalize on our brands’ recognition and existing customer base by enhancing our current product assortment and introducing new product categories. Additionally, we plan to identify new product categories (e.g. overshirts and luxury jogger pants) that will allow us to attract new customers and increase the appeal of our brands to a younger and more diverse customer base.

One Brand. In the fourth quarter of 2021, we announced a rebranding strategy, whereby, starting with the Fall/Winter 2022 season, our Ermenegildo Zegna, Z Zegna and Ermenegildo Zegna XXX brands will be consolidated into a single brand characterized by a new logo and signifier. The new brand, logo and signifier are designed to be iconic and immediately recognizable, allowing us to focus our collection and enhance our new luxury leisurewear proposition, which is proving to be successful both with our new customers and our existing loyal customers.

Thom Browne Growth. Thom Browne’s brand is broadly recognized amongst younger customers and perceived as an insurgent brand. We intend to continue leveraging the positive momentum around the brand and its customer proposition, and to remain at the forefront of product innovation. In particular, we intend to grow the Thom Browne business by pursuing the following strategies:

 

   

continue the successful development of Thom Browne products, focusing on growth of Thom Browne’s womenswear and accessories;

 

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significantly expand Thom Browne’s customer base while maintaining the loyalty of its existing customers by taking actions to increase the brand awareness and continuing to maintain a creative, thought-provoking design style with strong tailoring aesthetics;

 

   

continue to grow Thom Browne’s direct distribution channels, both through physical locations and e-commerce platforms; and

 

   

maintain a limited-volume presence in the wholesale distribution channel as a platform to increase the brand’s visibility and awareness.

Digital. We intend to continue to use digital tools to strengthen our processes and brands, attract new customers and retain our existing customer base. The Zegna segment’s DTC channel already includes, amongst others, an e-commerce shop operated directly in several countries through our website www.zegna.com, and other e-commerce platforms through which we sell directly to our customers (such as TMall Luxury Pavilion, Farfetch and WeChat) and whose sales systems are integrated with Zegna’s sales and warehouse management systems. Other prestigious online multibrand stores in our wholesale channel include SSENSE, Mr. Porter and JD. In addition, the Thom Browne segment’s DTC channel includes an e-commerce shop operated directly through the website www.thombrowne.com, and Thom Browne is particularly capable of leveraging its customers’ brand awareness and presence in the main digital channels to drive traffic to its physical stores, thereby translating into reality and expanding the omni-channel concept. Moreover, we are enhancing our digital capabilities to offer effective online customer services and direct messaging, to support data driven marketing activities, to intercept consumer needs and develop products meeting customer preferences, improve customer experience, conduct commercial outreach, develop media and social media communication campaigns and offer digital showrooms for both our wholesale customers and retail buyers. We believe that reinforcing our digital tools has permitted, and will continue to permit us to reach a wider, younger, and more diverse audience and transmit our identity, history and values.

Industry

This section describes the trends and dynamics of the market in which we operate.

We operate in the personal luxury goods market with most of our revenues derived from the apparel and accessories markets. Approximately 9%, 8% and 8% of our revenues after eliminations for the years ended December 31, 2020, 2019 and 2018, respectively, were derived from the luxury textiles market, which is not described in this section.

The personal luxury goods market includes the following product segments: accessories, jewelry, beauty, apparel and watches. By product, we primarily operate in the apparel and accessories segments of the personal luxury goods market.

The information relating to the industry contained in this section has been based on the Bain-Altagamma Luxury Goods Worldwide Market Study, Fall 2021, dated November 11, 2021. The figures included for the year 2021 are estimates (as actual figures for such year were not available as of the date of publication of such reports). See “Market and Industry Information”.

Trends and structure of the global personal luxury goods market

Demand in the personal luxury goods market, especially in the absolute luxury segment (in which we operate), tends to have a rather low price sensitivity. Demand is driven more by the quality of the products and the extent to which the brand is recognizable and exclusive. The equity of the brand and its intrinsic value are a key factor and usually the products designed, distributed and branded by a luxury company are very distinctive, clearly relatable to their brand and unlikely to be confused with products designed and distributed by lower tier brands or companies.

 

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The global personal luxury goods market had a total estimated value for the year 2021 of approximately €283 billion and has grown steadily for about two decades with a CAGR of 6% from 1996 to 2019. In 2020, the luxury goods market experienced a decline in demand as a result of the COVID-19 pandemic and changing customer preferences and habits, which has led customers to turn to lower priced products and postpone or reduce the purchase of personal luxury goods. In 2021, the personal luxury goods market experienced a V-shaped rebound driven, among other things, by consumers shifting from experiences to products.

The chart below sets forth the evolution of sales in the global personal luxury goods market from 1996 to 2020 and the expected evolution for the years from 2021 to 2025. With the exception of 2020, the global personal luxury goods market has shown a continuous mid-single digit growth path and is expected to have a CAGR of 6-8% from 2021 through 2025.

Personal Luxury Goods Market Evolution – €bn

 

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Source: Bain-Altagamma Luxury Goods Worldwide Market Study, Fall 2021, dated November 11, 2021

Since the first quarter of 2021, the global personal luxury goods market started to experience a recovery driven primarily by the positive evolution of the pandemic and the roll-out of COVID-19 vaccines and immunization campaigns, which allowed governments to ease restrictions, leading to a partial resumption of shopping and traveling, partial return to pre-pandemic living styles, levels of consumer confidence and rebounding consumption trends especially in Greater China.

The trends experienced in 2021 are expected to continue to be the main drivers of growth in the coming years.

Certain trends that started before the spread of the COVID-19 pandemic and that are expected to continue over the next few years, representing the drivers of the personal luxury goods market, are: (i) the shift from formal apparel to casual luxury, also driven by the adoption of remote or hybrid working arrangements, (ii) increase in domestic purchases everywhere, and notably in Asia (as opposed to tourism-related purchases),

 

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(iii) increasing attention to sustainability, diversity and ethical considerations, (iv) increased focus on “hero products,” the iconic best-selling products of a brand, (v) increasing weight of online purchases, as a result of which players in the personal luxury goods market will have to continue the shift to an omnichannel concept, with an increasing integration of the digital and physical shopping experiences, and (vi) strong demographic shift with an increase of “under 40” customers.

The chart below sets forth the projected evolution of sales in the personal luxury goods market per quarter in 2020 and 2021 as compared to the corresponding periods in 2019. Beginning from the third quarter of 2020, the personal luxury goods market shows signs of improvement compared to the prior quarters of the same year, and sales for 2021 are expected to be slightly above those of 2019 at current exchange rates (+1%), or showing a 4% increase at constant exchange rates.

Personal luxury goods market evolution per quarter 2020 and 2021E – %| vs. 2019

 

 

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Note: @K: growth at constant rates

* Mid case +1%

Source: Bain-Altagamma Luxury Goods Worldwide Market Study, Fall 2021, dated November 11, 2021

The personal luxury goods market does not appear to be a highly concentrated market. It is characterized by the presence of a small number of global players and a large number of locally-based niche ones. Development strategies adopted by such players have focused on the offer of a wide range of products distinguished by a high degree of innovation and diversification, frequently aiming at offering a “total look” collection.

The personal luxury goods market is characterized by certain barriers to entry, such as: (i) the need to develop or acquire a recognized brand whose reputation must be sustained by high and continuing investments in advertising and communication; (ii) the need to make substantial investments in the development of a distribution network in line with the quality standards required by the industry; (iii) the difficulty to access existing distribution channels, which are closely controlled by the incumbent players; and (iv) the challenge of achieving and maintaining high product quality standards.

 

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Global market trends by geographic area

The chart below sets forth the value of sales in the global personal luxury goods market for 2019 and estimates for the years 2021 and 2025 split by geographic area.

Personal Luxury Goods Market by Geographic Area – €bn

 

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Source: Bain-Altagamma Luxury Goods Worldwide Market Study, Fall 2021, dated November 11, 2021. Percentages may not add to 100% because of rounding.

Market trends through 2025 are expected to show a significant increase in the relative weight of sales of personal luxury goods in China and a significant decrease in the relative weight of sales of personal luxury goods in Europe and the Americas.

Global market trends by product category

Menswear and Accessories Luxury Market

In recent years, growth in the global menswear and accessory luxury market has been primarily driven by the accessories product category. Demand for the menswear product category has been relatively stable in recent years, with a decline of formalwear offset by growing demand for casual luxury products.

Womenswear and Accessories Luxury Market

We are also exposed to the womenswear and accessories luxury market through the Thom Browne segment. Both womenswear and accessories are on a growing trajectory, with accessories enjoying a more pronounced growth than apparel.

 

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Global market trends by product style

In recent years, the menswear luxury market recorded growing demand for products characterized by a casual style, particularly for products such as outerwear, jersey and knitwear. The trend of casualization has been accelerated by the COVID-19 pandemic and the resulting adoption of remote working arrangements and changes in lifestyle.

Brands, Collections and Products

Zegna designs, produces, markets and distributes luxury menswear, footwear, leather goods and other accessories under the Zegna and Thom Browne brands, and luxury womenswear and children clothing under the Thom Browne brand. Zegna also markets eyewear, cufflinks and jewelry, watches, underwear and beachwear manufactured by licensed third parties. Zegna’s business covers the entire value chain thanks to its textile and knitwear design, manufacturing and distribution business (under the brands Lanificio Zegna, Dondi, Bonotto, Tessitura di Novara, Tessitura Ubertino and Filati Biagioli Modesto). The acquisition of historic Italian companies, each specialized in its own product sector, has enabled Zegna over the years to establish a true luxury textile laboratory producing the highest quality fabrics and safeguarding the uniqueness of its Italian supply chain.

Zegna carries out its business activities through two reportable segments: the Zegna segment and the Thom Browne segment. The Zegna segment consists of three product lines:

 

   

the Zegna Branded Products product line;

 

   

the Textile product line; and

 

   

the Strategic Alliances product line.

The Thom Browne segment corresponds to the Thom Browne business headed by Zegna’s majority-owned subsidiary Thom Browne Inc.

Zegna Segment

Zegna Branded Products Product Line

For the years ended December 31, 2020, 2019 and 2018, the Zegna Branded Products product line generated revenues equal to €636,478 thousand, €919,545 thousand and €930,013 thousand, respectively, representing 62.7%, 69.6% and 78.6% of our revenues after eliminations. The Zegna Branded Products product line includes luxury leisurewear, formalwear, leather accessories and other Zegna branded products.

The Zegna Branded Products product line offers a complete collection for men.

Over time, our brand evolved and adapted to the needs of the customers, developing different sensibilities, embodied by three brands:

 

   

Ermenegildo Zegna, the iconic, legendary heart of the brand;

 

   

Z Zegna, combining activewear and tailoring with a strong focus on technical innovation and performance fabrics; and

 

   

Ermenegildo Zegna XXX, the boldest expression of Zegna, which reimagines contemporary style with couture-level tailoring and fabrics.

In the fourth quarter of 2021, Zegna announced a rebranding strategy whereby, starting with the Fall/Winter 2022 season, the Ermenegildo Zegna, Z Zegna and Ermenegildo Zegna XXX brands will be replaced by a single brand characterized by a new highly recognizable logo and signifier.

 

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Each year Zegna offers pre-collections and main collections organized in two seasons (Fall/Winter and Spring/Summer) for each of the above-mentioned brands, plus a number of temporary capsule collections. The collections include both seasonal products (which change from season to season) and continuative products (which are generally sold across seasons with minimal style changes). Capsule collections are temporary collections that are inspired by a certain event (such as the 2021 Chinese New Year capsule collection), concept, or product features (such as the Outdoor Capsule, the first product launch carrying the new logo and signifier and featuring partnerships with top ski and winter sport specialists, and the Z Zegna Techmerino Wash&Go capsule collection, consisting of garments made of a special merino wool that can be easily washed in cold water, on a delicate setting, without altering the wearability, performance or quality standards).

Luxury leisurewear. In recent years Zegna’s apparel has shifted towards more versatile and technical luxury leisurewear for men, anticipating the needs of a fast-paced world. The evolution from pure formalwear is Zegna’s new definition of men’s style that we call “luxury leisurewear,” a new, versatile wardrobe building on our tradition of excellence. With this new style, Zegna is continuing the process of entering a new era marked by new categories of products meeting the changing habits and preferences of our customers, including the demand for greater comfort. Our luxury leisurewear offer ranges from knits to jeans, jersey and shirts, fabric and leather outerwear and accessories.

Formalwear. Zegna is historically renowned for luxury formal menswear and for being at the forefront of men’s tailoring with its iconic suits and tuxedos. Our formalwear offer ranges from formal suits to tuxedos, shirts, blazers, formal overcoats and accessories.

Our offer for both luxury leisurewear and formalwear also includes the Made to Measure (Su Misura) service, whereby customers may, following a meeting with a style advisor, order their custom-made garments with their fabric, style and finish of choice. This service is available not only for suits, but also for outerwear, shirts, pants, knitwear, denim and jersey. Our Bespoke services take customization to a higher level including the full experience of putting together a unique piece, from the sketches and design to the choice of the fabrics. Each piece is made specifically for the customer by our tailors in our ateliers in Milan and in Paris, using time-honored tailoring techniques.

Leather accessories. Leather accessories comprise shoes (sneakers and other shoes), bags, belts and small leather accessories. Our shoes offer has in recent years shifted from a prevalence of more formal shoes towards the increasing importance of certain highly recognizable casual sneaker models. In particular these include the successful Triple Stitch model, the Tiziano and the Claudio sneakers. Most of our shoes are produced in Italy, like most other leather accessories. We also provide our customers with the possibility to customize their preferred shoes through our Made-to-Order service. Several of the leather accessories feature the so called “Pelletessuta,” a soft and lightweight woven leather textile exclusively produced for Zegna by an external manufacturer. Pelletessuta is also used as part of a partnership with Maserati for the interiors of its cars.

Other Zegna branded products. Zegna licenses its brand to third parties for the manufacturing and distribution of eyewear, cufflinks and jewelry, beachwear, underwear and fragrances. We purchase these products from our licensees and the licensees pay fees and royalties to us under such licenses. All licensed products are generally sold by us through our DTC channel and by our licensing partners to wholesale customers and to other prestigious retailers.

Eyewear. The Marcolin Group has been our exclusive eyewear licensee since 2013 for the production and worldwide distribution of sunglasses and optical eyewear. The high quality and stylistic standards of Marcolin are combined with the exclusivity and international appeal of our brand, renowned for their “Made in Italy” excellence.

Cufflinks and Jewelry. Tateossian has been our exclusive cufflinks and male jewelry licensee since 1999. Our cufflinks and jewelry products are complementary to our garments and other accessories. Our jewelry products include bracelets, necklaces and rings.

 

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Underwear and Beachwear. Isaseta has been our exclusive licensee for underwear and beachwear since 2016 and 2017, respectively. Our underwear offer consists of t-shirts, boxers, trunks and socks. Our beachwear offer consists of swim boxers, beach towels and vacation essentials like polos and shorts, manufactured with lightweight and technically enhanced materials.

Fragrances. Estée Lauder has been our global exclusive fragrances licensee since 2011. Our signature fragrances, made with exotic oils and herbs coupled with the refined finish of rare ingredients, include a range of signature scents.

All the agreements governing licensed products provide for obligations for our licensees to comply with high quality standards, to ensure that our licensed products are available at selected prestigious points of sale and that they are timely delivered to the distribution network. The agreements have a fixed term and do not contain an automatic renewal mechanism. See “Risk Factors—Risk factors relating to Zegna’s business, strategy and operations—We could be adversely affected if we are unable to negotiate, maintain or renew our license agreements and strategic alliances.

In addition to licensed products, we also market certain other Zegna branded products specifically targeted to outlet points of sale.

As part of the activities of the Zegna Branded Products product line, Zegna has also entered into strategic partnerships for co-branding projects in order to strengthen the link with other luxury brands and mutually enhance the respective brands’ value. The co-branding agreements set forth the terms for the production of certain selected co-branded products and the relevant co-marketing activities. Co-branded products are sold through our DTC channel and in the monobrand stores of our co-branding partners.

Maserati. We started a long-term and evolving partnership with Maserati in 2013, combining our innovative technologies and century-old traditions to bring both the experience of luxury cars and clothing to a new level of luxury. The collaboration features a special edition of Maserati’s sports cars and a seasonal capsule collection of luxury essentials for the modern man.

Leica Camera. We started an exclusive collaboration with Leica Camera to bring together two different expressions of innovation and creativity. The partnership with Leica Camera started with the Ermenegildo Zegna XXX Fall/Winter 2020 Fashion Show and involves the production of certain leather camera accessories distributed both through our DTC channel and Leica’s monobrand stores.

Fear of God. Launched in Paris in early March 2020, Fear of God exclusively for Ermenegildo Zegna was an authentic and innovative capsule collection born from two apparently distant worlds, consisting of a contemporary wardrobe for young men whose lifestyle is an expression of elegance and freedom. The capsule collection proved very successful, with certain items selling out in two days after the launch and approximately 88% of revenues generated from sales to new customers. We believe that this kind of collaboration may have the potential to attract new customers and increase the appeal of our brands to a younger and more diverse customer base.

Textile Product Line

For the years ended December 31, 2020, 2019 and 2018, the Textile product line generated revenues after eliminations equal to €87,615 thousand, €108,513 thousand and €98,771 thousand, respectively, representing 8.6%, 8.2% and 8.4% of our revenues. The Textile product line is engaged in the design, manufacturing and sale of luxury fabrics under the brands Lanificio Zegna, Dondi, Bonotto, Tessitura di Novara and the recently acquired Tessitura Ubertino and Filati Biagioli Modesto, the latter specialized in the production of cashmere yarns. These fabrics are both used for production within Zegna and sold to other global luxury brands and tailors. We believe that the exceptional quality of the textiles used in our garments is one of the principal reasons for the success of Zegna through the years.

 

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The activities of the Textile product line are focused on the research and development of excellence in all of our fabrics, in terms of product quality, style, design, and technical features. We sell our fabrics both to other product lines of the Zegna segment or to the Thom Browne segment, and to third party customers, which include other luxury brands, specialized players or tailoring businesses. We regularly take part in textile fairs and exhibitions to market the products of our Textile product line to the industry’s specialized players. In addition, we have a global network of sales representatives that assist us with the marketing of such products to tailors worldwide.

Lanificio Zegna, the Zegna wool mill founded in 1910 in Trivero, Italy, has been the backbone of Zegna’s success and is renowned internationally for its fine textiles. Three generations of the Zegna family have led textile success by carefully balancing science with nature and craftsmanship with technology. As a result, the Lanificio has pioneered sophisticated men’s fabrics that are lighter, smoother, more refined, and with improved performance and functionality.

Tessitura di Novara (which we acquired in 2009) is specialized in high quality silk weaving. It is a leading producer of pure silk and other high-end natural fabrics of unparalleled quality, combining artisan skills and innovative technologies. Tessitura di Novara’s production facilities are located in Trivero, Italy.

Bonotto (in which we acquired a 60% interest in 2016) is a textile manufacturer based in Molvena, Italy, that was originally founded in 1912. The brand focuses on handcraftsmanship and traditional techniques and is characterized by the creative and experimental dimensions of their fabrics, which take inspiration from the art world. Bonotto is premised on the philosophy of the “slow factory,” which rejects the concepts of industrial standardization and mass production at low cost, in favor of traditional but innovative production techniques allowing to obtain exquisite, precious fabrics.

Dondi (in which we acquired a 65% interest in 2019) is a leader in manufacturing high-quality jersey fabrics for men and women, all Made in Italy. Dondi’s production cycle covers the phases from fabric design to distribution. Dondi counts among its customers not only Zegna’s companies, but also some of the most prestigious brands in the fashion world. Dondi’s production facilities are based in Carpi, Italy.

Tessitura Ubertino (in which we acquired a 60% interest in June 2021) is a boutique weaving mill based in Pratrivero, Italy. Founded in 1981 by Adalgiso Ubertino, Tessitura Ubertino has been creating premium quality fabrics for women, such as tweed and jacquard, for over 30 years and today it supplies fabrics to major fashion brands.

Filati Biagioli Modesto (in which we acquired a 40% interest in July 2021) specializes in the manufacture of carded yarns, integrating the entire process of transformation from fiber to yarn. Founded in the 1960s by Mr. Modesto Biagioli, it carefully selects raw materials (such as cashmere, silk, camel, angora, alpaca, flax and merino wool) that are used for the production of its natural yarns, transformed entirely in Italy and then sold to luxury and fashion brands.

Strategic Alliances Product Line

For the years ended December 31, 2020, 2019 and 2018, the Strategic Alliances product line generated revenues after eliminations equal to €82,273 thousand, €91,720 thousand and €92,293 thousand, respectively, representing 8.1%, 6.9% and 7.8% of our revenues. The Strategic Alliances product line is engaged in the manufacturing and distribution of menswear under the Tom Ford brand, and the supply of apparel for men to Dunhill and Gucci, in each case pursuant to agreements with such third-party brands.

Tom Ford. We have acted as an exclusive licensee for the manufacturing and distribution of menswear under the Tom Ford brand since 2004. Under the relevant license agreement, the royalty rates we are required to pay, which also include contributions for advertising, are based on net sales of the licensed products by Tom

 

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Ford, subject to certain minimum levels. The existing license agreement with Tom Ford will expire with the completion of the production and distribution activities for the Fall/Winter 2022 collection. Starting with the Spring/Summer 2023 collection, we will act as as an exclusive supplier only for certain Tom Ford’s products until at least the Fall/Winter 2025 collection.

Dunhill. We have acted as a manufacturer and supplier of suits, jackets, blazers and formal overcoats under the Dunhill brand since 1998. Under the relevant agreement, we are required to comply with the designs and specifications supplied by Alfred Dunhill Ltd., as well as certain other restrictions relating to intellectual property and confidentiality. The agreement with Alfred Dunhill Ltd. does not provide for an express expiration date.

Gucci. We have acted as a manufacturer and supplier of jackets and formal overcoats, slacks and knitwear (both ready-to-wear and made to measure) under the Gucci brand since 1990. Under the relevant agreement, which was recently renewed, we are required to comply with the designs and specifications supplied by Gucci, as well as certain other restrictions relating to intellectual property, sustainability and confidentiality. Gucci has agreed, on a best effort basis, to place a minimum number of orders for each season for jackets and formal overcoats and granted us an exclusivity for made to measure products. The agreement with Gucci is set to expire upon completion of the Spring/Summer 2028 collection, unless a renewal is agreed between the parties.

Until the deconsolidation of the Agnona business in January 2021, we were also active in the luxury womenswear business through the Agnona product line of the Zegna segment. For the years ended December 31, 2020, 2019 and 2018, the Agnona product line generated revenues after eliminations equal to €12,389 thousand, €17,691 thousand and €17,662 thousand, respectively, representing 1.2%, 1.3% and 1.5% of our revenues.

Thom Browne Segment

For the years ended December 31, 2020, 2019 and 2018, the Thom Browne segment represented 17.7%, 12.2% and 1.6% of our revenues, respectively, after eliminations.

Thom Browne is a renowned fast-growing luxury brand focused on high-end menswear, womenswear, accessories and childrenswear. The brand was founded by Mr. Thom Browne in 2001 and has since been based in New York. In 2018, we completed the acquisition of 85% of Thom Browne Inc., the holding company of the Thom Browne business. In June 2021, we acquired an additional 5% equity interest in Thom Browne Inc. The Thom Browne business’s growth since the initial acquisition has been remarkable, with revenues increasing from approximately €117 million in 2018 to €179 million in 2020.

Each year Thom Browne offers pre-collections and main collections, organized into two seasons (Fall/ Winter and Spring/Summer) for each of men, women and children.

Mr. Browne started designing clothes for friends and family in the early 2000s, and his popularity as a fashion designer has grown ever since. Thom Browne’s signature line of grey suits redefined the concept of male silhouette, and his collections lean heavily on two main colors: grey and navy. The brand uses the highest quality materials to obtain garments that are beautiful, classic and durable. Its distinctive traits are the absence of any form of a bold logo, the cropped silhouette of the garments and the use of visual identifiers as trademarks, such as the four white horizontal bands (uniquely located on the left upper sleeve and/or upper pant leg) and/or a grosgrain ribbon or tab in White, Red, White, Blue, White (also uniquely positioned on the garments). Each Thom Browne piece is designed to be aesthetically perfect, classic and long-lasting, inspired by Mr. Browne’s philosophy that something beautifully made will never be out of fashion.

Operations

Our corporate operations are divided among our locations in Trivero and Milan, Italy; Stabio, Switzerland; and New York (where the Thom Browne management is based).

 

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Our primary activities consist in the creation, manufacture and marketing of our pre-collections and main collections, organized into (i) two seasons (Fall/Winter and Spring/Summer) for each of the Zegna brands, plus certain special capsule collections, and (ii) seasonal collections for the Thom Browne segment, divided for men, women and children. Each collection takes approximately 12 months from design to delivery of the finished products to our customers.

Our activities can be subdivided into the following major stages, overseen by different functions in our organization: (i) design; (ii) brand and merchandising; (iii) sales campaign; (iv) procurement; (v) manufacturing; (vi) logistics and inventory management; and (vii) marketing and advertising, as further described below.

The activities of the Textile product line and of the Strategic Alliance product line follow their own operational phases and logics.

Design, Brand and Merchandising

Each new collection is created by the Design teams of Zegna and Thom Browne, working in close coordination with their respective Brand and Merchandising team, allowing for a virtuous cross-contamination of ideas. The new collections are therefore created by the designers and stylists considering market analyses and seasonal fashion trends.

The Brand and Merchandising team of the Zegna brands is supported by a team of product developers, who also work in close cooperation with the modelers of the Supply Chain teams, for a total of approximately 100 people involved in this production stage. The modelers transform the designers’ sketches first into paper or 3D models, and then into prototypes to assess the look, feel and functionality of the product, and allowing the Brand and Merchandising team to fine-tune the prototypes and the Supply Chain technicians to anticipate any issues that may arise during the manufacturing process. Once the prototypes are approved, a sample collection is produced based on such prototypes. Modeling and prototyping are completed almost entirely in-house and the Design, Brand and Merchandising and Supply Chain teams closely cooperate and share information and suggestions with each other to ensure that the ready-to-wear products, and most leather products and accessories of the Zegna brands, are manufactured on time and consistent with the delivery plans for our collections.

In these phases, Thom Browne’s Design team works closely with a number of trusted long standing external players, coordinated by an internal product development team.

Sales Campaign

The sample collections, once ready, are presented to wholesale customers and retail buyers at Zegna’s showrooms in Milan, New York and Shanghai for the Zegna Branded Products and in New York and Milan for Thom Browne. The sample collections usually highlight styles and themes and occasions for use, and present a breakdown of products by product category, price range and look. In addition, our showrooms display the full Zegna and Thom Browne offerings across all product categories, simulating the effect of point-of-sale displays. While this process has historically been carried out through in-person meetings, as a result of the COVID-19 pandemic we adopted tools allowing our wholesale customers and retail buyers to view and submit online orders for the sample collections. Similar tools may continue to be used following the lifting of restrictions related to the pandemic as an enhancement of the traditional sales campaign experience.

During the sales campaign, orders are taken by our customer service teams from wholesale customers (including franchisees) and retail buyers to form an order portfolio. Retail buyers place orders by selecting products in accordance with our buying guidelines, in particular with respect to DOSs, in order to ensure the consistency of the products’ assortment in the various stores.

 

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Sales campaigns last approximately two months. During the sales campaign, and based on preliminary orders placed by the retail buyers and wholesale customers, the Brand and Merchandising and the Supply Chain teams regularly share information on the evolution of the order portfolio to align the initial forecasts for raw material procurement and production planning.

Procurement

Based on our forecasts and the order portfolio, we source the necessary raw materials, trimmings and finished goods through our network of selected suppliers. While the initial purchases are based on forecasts, we adjust and supplement such purchases based on actual orders as the sales campaign progresses.

Sourcing activities are separately carried out for our two segments, in the Zegna segment for apparel and leather accessories, on the one hand, and for the Textile product line, on the other hand. Trimmings (such as fabrics, buttons, linings, interlinings and zips) are purchased from selected suppliers for both the Zegna and the Thom Browne segments.

Approximately 40% of the raw materials used by the Zegna segment (excluding the Textile product line), such as wool, cotton, leather, silk, linen and cashmere, are purchased through our Textile product line, while the remaining approximately 60% is sourced from other selected suppliers. Approximately 10% of the raw materials used by the Thom Browne segment, such as wool, cotton, leather, silk, linen and cashmere, are purchased through the Zegna segment’s Textile product line, while the remaining approximately 90% is sourced from other selected suppliers.

In 2020, the Zegna seg