Permira sells remaining shareholder at Hugo Boss

Permira has decided to sell its 12% of Hugo Boss to institutional investors, equivalent to about 8.5 million shares worth €1 billion. The decision did not surprise anyone, since Permira started its exit two years ago, after spending five years as main shareholder of the German company. Their joint history dates back to 2007, when Permira bought the majority stake in Valentino at the Marzotto family, which in turn was the main shareholder of Hugo Boss, with 51% of the shares. By capturing a majority stake, Permira launched a tender offer to the rest of shareholders of the German company.

The business has been excellent for both parts. For the company, since 2007 it has increased its sales by 60% to over €2.6 billion and has more than doubled its operating profit. Permira, it bought shares at less than 50 euros and is being sold for more than 100. After the transaction, the free float (or percentage of capital freely traded in the stock market) will be 91%, while Marzotto family -the former owner of Valentino and Hugo Boss– will own another 7%.

Before the announcement, Hugo Boss raised its profit forecasts for this year thanks to its international expansion. The company is betting on adding new shops in Asia and the Middle East to offset the weak demand in Europe.

Hugo Boss now expects Ebitda (gross operating profit) increased between 5% and 7% this year, about the same growth rate achieved in the last fiscal quarter, when it was 6%. Sales may grow at a rate close to 5%. In any case, it is a positive rate given the weakness of its main market, Germany, where industry sales were down by 8% in the same quarter, according to Kepler estimates. To keep the growth pace, Hugo Boss is betting on Asian markets to take advantage of strong demand for luxury goods. This growth is relying primarily through the recovery of franchise stores operated by third parties. This has been the formula used for example in Korea and China, which it now operates about 150 shops.

Hugo Boss shareholders have many reasons to be happy. Shares rise 13% so far this year and 30% in the last twelve months, pretty significant figures. Also, keep in mind that the price has fallen by 5% in recent days because of Permira plans. Furthermore, it appears that the expected sale has probably stopped the upward trend lately as many investors preferred to wait until all this «paper» held by the venture capital firm went out to the market. Another negative factor was a report from Goldman Sachs, which recommended sell its shares because he feared that the weakness of the luxury industry particularly affects the results of the company. Today, it is trading at a estimated PER estimated for 2015 at 20 times, in line with the industry.

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