New Look has wheeled out the big guns for its proposed flotation on the London Stock Exchange. Credit Suisse, Deutsche Bank, JP Morgan Cazenove and Lazard are all on the ticket. (And that’s just the lead mangers – Barclays, Lloyds, RBS are co-lead mangers and Investec and Singer Capital Markets are something called co-managers).
All of which is probably not a huge surprise given the recent dismal performance of retail IPOs – think Debenhams and Sports Direct.
The fast-fashion retailer is looking to raise around £650m to pay down debt and fund expansion on an enterprise valuation that could be as high as £2bn, according to analysts.
Now, New Look insists that is not a dual track process – it is not trying to flush out a private equity buyer in spite Lazard’s presence as an adviser. It is serious about floating.
From Reuters:
“There isn’t a dual process as far as we’re concerned. We’re working towards an IPO and that’s the decision the board has made,” Carl McPhail said in a telephone interview on Tuesday after New Look announced plans for a stock market listing
If that’s the case, the New Look re-float – the company was taken private by Permira and Apax Partners with founder Tom Singh in 2004 for £800m – will provide an interesting litmus test of investor sentiment.
The last company to be floated by private equity backers was fund management group Gartmore and it was forced to lower the price of its IPO to 220p – almost 16 per cent from the mid-point of its target price range.
The company and its advisers tried to paint this as a success because the float came at the time financial markets were rocked by the Dubai debt crisis. Few people bought that line – the reality was the price was too high. Unlike the torrent of rights issues seen in 2009, institutions are well aware of the fact that new listings have no coercive element and they can drive down the price. Indeed, shares in Gartmore are still below the revised flotation price.
Now, a £2bn valuation for New Look would certainly be punchy, given that investor sentiment has turned against the retail sector, amid concerns about the outlook for consumer spending in the face of tax rises and cuts to public sector employment.
New Look also has a £1bn of debt, which admittedly will come down to £450m post flotation.
According to Freddie George, retail analyst at Seymour Pierce, at an enterprise value of £2bn, investors would be buying into New Look on rating of 18 times 2009/10 earnings. (New Look’s financial year runs to March)
New Look (NO RATING) – Intention to float New Look has confirmed its intention to proceed with an IPO. The Group is looking to raise c.£650m new money – on a valuation rumoured to be in the region of £2bn – to fund further expansion plans.
In the year ended 28 March 2009, the Group generated revenue of £1.3bn and an adjusted EBITDA of £217.6m; growth rates of 13.7% and 12.9% CAGR respectively over the period 2004-2009. During H1 2009/10, the Group generated further revenue of £706m and an EBITDA of £117.8m.
On our estimates, the company has been acquired, assuming an enterprise value of £2.0bn, at 18.0x at 2009/10 earnings and 9.0x EV/EBITDA.
In the statement the company sees growth arising from the following four sources. – UK retail space expansion and refurbishment. – The development and the broadening of the product ranges, in particular in menswear and childrenswear. – The growth of e commerce. It intends to launch a second generation website in Spring 2010. – International development including in France and Ireland. In the statement, management believes the strengths of the company are its market positioning, the brand proposition, the model being flexible and geared to fast fashion and strong management.
New Look and its advisers will no doubt argue that such a valuation is justified as it has been growing at 15-20 per cent over the past couple of years and that with just 1.5 per cent of the UK clothing market there is plenty of room to grow. And that’s before its international expansion plans are taken into consideration.
But it is difficult to imagine institutions driving anything other than a hard bargain on the New Look float. Indeed, with rival Next trading a prospective PE of 10.9 times earnings they would be mad not to.
Related link:
Fund management flop – FT Alphaville