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Lots of people are keen to see the return of initial public offerings in Europe. They include equity capital markets bankers tired of the golf course, newshounds and — of course — private equity firms, awaiting a chance to monetise their assets.
Under pressure to unblock their clogged portfolios, the latter will need to take unusual steps to get deals away.
Take the news that CVC, which owns 85 per cent of beauty retailer Douglas, is set to be a buyer, rather than a seller, in the upcoming IPO. The private equity group, which acquired Douglas in 2015, is not just holding on to its existing equity. Alongside the founding Kreke family, which retained a 15 per cent stake, CVC will also put €300mn of new money into the company.
This is a function of high debt and fragile markets. Douglas needs to raise €1.1bn to reduce net debt from the current 4 times ebitda to a more reasonable 2.7 times. The sooner the better, too. Its debt costs a chunky 8 per cent annually and falls due in 2026.
But breaking the ice on Europe’s IPO market with such a big offering was a gamble. Thus it plans to raise a slice of the cash from existing shareholders, and limit the size of the public offering to €800mn.
Investors find merit in CVCs determination to make the IPO a success. And Douglas itself is rather a pretty thing. Revenues, which came in at €4.1bn in the year to September 2023, should grow by 7 per cent a year, with ebitda margins reaching 18.5 per cent.
Its patch looks reasonably sheltered, too. It has exclusive agreements to distribute high-end cosmetics such as Chanel and Dior, which pulls it out from Amazon’s shadow. While luxury brands leapfrogged platforms such as Farfetch and Yoox Net-a-Porter to sell clothes directly to consumers, that’s harder to pull off for lower-ticket items such as lipsticks.
Any attraction to Douglas will depend on its valuation. It has few direct comparables. It deserves chunky discounts to US beauty giant Ulta, on 14 times ebitda, and European retailers such as Inditex, on 12 times ebitda. A closer peer might be eyewear retailer Fielmann — smaller, with slightly higher growth and margins — which trades at 8.3 times 2024 ebitda.
On that basis, Douglas would command an enterprise value of €6.4bn. But investors, scenting CVC’s strong desire to get a deal done, might well demand a fair discount before they snap it up.
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