New Look Targets IPO´s Trends
Premiere, Apax Partners and the founder, Tom Singh want to take advantage of the momentum of the sector in the stock market.
New Look may be the next fashion company to go public. After a failed attempt in 2010, the owners of the British chain -the private equity funds Permira and Apax Partners and the founder, Tom Singh- want to take advantage of the momentum of the sector in the stock market to retrieve part of their investment in the company. In any case, it is still unclear whether the current owners would sell a minority or a controlling stake. It also appears that the expansion plans of New Look are behind the IPO, so the placement of shares might be not limited to an IPO, but the company also selling new shares to catch new resources to finance its expansion (wants to turn China as the second largest market by number of stores, with 70 operating shops by the end of the next fiscal year.
Five years ago, the company abandoned its attempt as investors felt that New Look had a debt problem, as it was quite high for its balance and its ability to generate resources (cash-flow). Less than a month ago, the CEO of the company, Anders Kristiansen, admitted that the company was analyzing this possibility. At that time, several analyst firms valued the company at about £2 billion (€2.7 billion at current exchange rates).
Since 2010, the company has changed a lot. First, two years ago launched a bond issue worth £800 million (€1 billion), which allowed it to refinance or put order in much of the debt it owed to then (€1.3 billion). It also decided to drastically change its business model. In 2010 it was betting on the lowest segment of the market, competing with companies such as Primark by offering fashion at low prices. But Kristiansen decided to change that philosophy and opted for a higher market segment, while expanding its international presence (today has over 800 stores in 21 countries).
In its last fiscal quarter ended December, the company released a yearly decline in sales of 1.7% to £400 million (€520 million), because of warmer weather than usual, which has delayed sales of winter clothes, more expensive and with more profit margin for the company. This effect was clearly showed in the accounting of several of its main competitors, such as H&M and Next. However, this behavior had two very distinct parts, since the first part of the quarter was negative, while sales during the second half of this period increased by more than 4%, which for the company meant that the new collection had a good reception.
Many investors also speculate that other fashion brands may go public in the coming months to tap investor´s appetite. One of the most quoted in Primark, owned by Associated British Foods (better known as ABF), which has been an unprecedented success in recent years -benefited by the economic crisis-, although the management of this low-cost clothing chain have repeatedly denied it.
Disclosure: The author is not responsible for the views expressed in the article. The text has been written freely expressing ideas, without receiving any compensation. The author has no business relationship with any of the companies whose shares are listed in this article.