For CVC Capital Partners the prospect of listing retailer Douglas on the Frankfurt stock exchange is light at the end of the tunnel, following almost a decade’s ownership of the premium beauty group whose performance has been anything but pretty.
Luxembourg-based CVC bought Douglas, whose roots stretch back more than two centuries, from rival Advent International in 2015 with plans to grow the Düsseldorf-based chain.
But the length of CVC’s ownership has far surpassed the norm for the firm, reflecting Douglas’s poor performance during the pandemic and ballooning debt. The chain has made a profit only twice since the buyout group acquired it and has racked up losses of €1.7bn since 2014, according to company filings.
For CVC, the Douglas investment has “not been a showcase from a financial perspective”, a person familiar with the PE group’s internal discussions told the Financial Times, adding that the holding period has been “exceptionally long” compared to the firm’s usual timeframe of three to five years.
CVC even wondered three years ago whether it would be forced to write off its then €1bn equity investment in Douglas, saying the firm had “really looked into the abyss” over the retailer’s future. In a statement this week, the buyout group said that it was “very proud to . . . have backed the company over the recent years”, adding that it remained a major shareholder “as we see further growth potential” for the group.
But the path to an eventual exit finally appears to be in sight with the announcement this week that Douglas plans to raise €1.1bn in an initial public offering on the Frankfurt stock exchange by the end of this month.
The company, which acquired Douglas for about €3bn, is seeking a valuation of around €6bn excluding debt, according to people familiar with the discussions. The IPO — a test for Europe’s moribund listings market — could be the biggest in Germany since Porsche’s blockbuster listing in 2022.
Douglas is named after Scottish entrepreneur John Sharp Douglas, who in 1821 opened a soap factory in Hamburg. It was acquired by the entrepreneurial Kreke family in 1969 and now operates 1850 stores in 22 European countries as well as one of the continent’s leading online shops for cosmetics. As a competitor to French premium beauty retailer Sephora, it sells luxury brands such as Chanel, Dior and Yves Saint Laurent as well as ranges by the likes of Clinique and Mac.
The listing comes as beauty proves a bright spot in the consumer economy, with shoppers willing to treat themselves despite pressured budgets. LVMH-owned Sephora recently released a blockbuster set of annual results and said it had the potential to reach €20bn in sales, while L’Oréal reported a 7.6 per cent rise in sales last year to more than €41bn.
Galderma, one of the world’s largest dermatology companies, also this week announced plans to list, aiming to raise $2.3bn on the Swiss stock exchange.
“We believe that the overall European premium beauty market will grow faster in the future than it did in the past as premium beauty is on the move,” Sander van der Laan, Douglas’s chief executive, told the FT.
Van der Laan, a retail veteran who previously worked at Dutch discount chain Action and supermarket group Ahold Delhaize, has overseen a recovery in Douglas’s performance since he joined the group in 2022. Sales increased 12 per cent to €4.1bn last year while earnings before interest, taxes, depreciation and amortisation, adjusted for one-offs, rose more than a fifth to €726mn.
The performance marks a sharp turnaround from recent years, with Douglas having had a torrid time during the pandemic.
The group was hit disproportionally hard compared to some other retailers as European governments forced beauty chains to close during lockdowns, while rival drugstores — which also sell cosmetics — were allowed to remain open. Douglas was also not permitted to tap the emergency liquidity support provided by the German government due to its private equity ownership.
The group’s financial position was badly damaged as it burnt through cash, with debt rising to 9 times earnings before interest, taxes, depreciation and amortisation. In the 12 months to September 2020 it suffered a net loss of €479mn on revenue of €3.2bn.
CVC pumped in an additional €200mn in equity to prevent the retailer’s collapse. The company axed more than 500 of 2,400 stores during the pandemic but it still has €3.1bn in net debt, or four times ebitda.
There have been other problems of the group’s own making, including a botched acquisition in Spain and too much focus on the lower margin mass market beauty segment in the early years of CVC’s ownership.
The struggle to make a profit was hampered by the large burdens of restructuring costs and interest expenses on the debt that funded the buyout.
Yet Werner Reinartz, director of the Center for Research in Retailing at Cologne University, described Douglas as “a role model” for retailers given its balance between bricks-and-mortar stores and digital offerings.
“Over the past few years, Douglas got many things right,” he said, pointing to the fact that the ecommerce accounts for a third of total sales and is growing faster than those made in stores.
Van der Laan said Douglas “has not declared stores dead”, with the chain planning to open 200 by 2026. The group’s loyalty-card programme has 55mn members, allowing it to track purchasing behaviour, and van der Laan said he could grow sales by an average of 7 per cent a year.
Yet CVC, which holds an 86 per cent stake alongside the Kreke family, who remain co-owners, will still need to be patient before it achieves a full exit.
It has pulled back from an original plan to sell some of its shares in the IPO, according to the person familiar with internal discussions. Instead, the existing owners have committed to buy new shares for up to €300mn to reduce debt and refinance the remaining on better terms.
CVC hopes that a stronger balance sheet, along with the prospect of strong top-line growth and dividends, will later open the door to sell down its remaining stake.
“CVC has been a very good shareholder,” van der Laan said when praising the plan to inject more equity during the IPO to repair the balance sheet. “I’m very happy with them.”
