Valuations of prominent private equity-backed retailers are rising on the back of earnings momentum and investor appetite for quoted retailers.
The improving situation raises the prospect of renewed corporate activity, such as sales or IPOs, although that is still unlikely in the immediate term.
Last week, SVG Capital wrote up its investment in fashion group New Look by £8.7m to £20.4m – an increase of 74%. SVG, which mainly invests through Permira, said the shift reflected “an increase in both earnings and public company comparable earnings multiples used in the valuation”.
The valuation methodology used by private equity investors does not typically reflect the valuation that might be achieved in the event of a sale or float. Usually, only the equity is valued and debt – a crucial factor – is not.
However, valuation rises – following high-profile problems that have hit some private equity-backed retailers, including Robert Dyas – will be welcome news as retailers including Blue Inc, Ocado and Pets at Home ponder IPOs.
Private equity sources cautioned that despite valuation improvements, a swathe of exits will not necessarily follow. One said: “There are a large number of businesses that are now worth a lot less than they were, even in an improving market. A handful have performed strongly and there will be opportunities to exit.”
David Williams, operating partner at Duke Street Capital and chairman of Original Factory Shop, said it is difficult to draw general conclusions from an individual case, but added: “A lot of businesses bought by private equity were out of favour when they were bought, but private equity rigour will prove to be very good from a valuation perspective.”
New Look chairman Phil Wrigley said the business continues to trade well, but downplayed the likelihood of a float soon. He said: “There’s been reasonable activity on things like rights issues, but little significant in IPOs. Retail businesses are not typically the first back to market – they’re typically second or third wave.”
New Look tests format
New Look last week opened a standalone accessories and footwear shop at Cribbs Causeway in Bristol, writes Laura Weir.
The retailer said the move is a trial, but it could be rolled out to more than 10 locations across the country. The store is 2,600 sq ft and the retailer is seeking further shops between 2,800 and 4,500 sq ft.
New Look buying, merchandise and design director Malcolm Collins said: “It is an opportunity for us to introduce the footwear and accessories to shoppers who may not buy New Look clothing.”
New Look is footwear market leader in terms of volume and value in the women’s 16- 44-year- old category.
The new concept sells 70% footwear and 30% accessories. Collins added that the design is “about trying to offer an upmarket feel with interesting details”.
The retailer has also benefited from the fallout in the specialist footwear market, which has seen retailers such as Dolcis and Stead & Simpson hit the buffers.