Grim outlook fails to dampen retailers’ flotation hopes — but will they hit their valuations?
The City’s derating of the stores sector and expectations of tough trading are unlikely to scotch appetite for retail IPOs, with the first flotations in three years set to be unveiled within weeks.
Although tough negotiations on price are likely, City sources told Retail Week that investors are prepared to buy into strong retailers despite sector uncertainty.
Fashion specialist Supergroup - which owns Superdry and Cult Clothing - is expected to be among the first to list, having recorded Christmas like-for-likes up 29%.
Sources familiar with the situation said canvassing of potential investors generated an enthusiastic response and, barring unforeseen developments, the retailer will formally proceed with a main market listing over the next two or three weeks. “It’s 99% there,” the source said.
Other retailers including New Look, Ocado, DFS and Pets at Home are among those considering floats. Pets at Home has been pursuing a dual track process of a float or sale to another private equity firm.
City sources said that although Pets at Home might opt for a sale, that should not be taken as a sign that other retailers could not float.
Quoted general retailers are trading at six times EBITDA at present, down from seven times before Christmas, making it harder for flotation candidates to achieve hoped for valuations.
Sentiment has been affected by concern over a stagnant retail market this year, and the general election.
However, brokers and financiers said successful floats are achievable. One said: “My sense is they’ll happen in the case of high-quality businesses that are clearly differentiated. The election is a distraction, not a fundamental risk.”
KBC Peel Hunt analyst John Stevenson said companies in which existing private investors retain significant stakes were also likely to be looked on more favourably, as happened with Dunelm, which floated in 2006. It is understood that would be the case with New Look.
Supergroup chief executive Julian Dunkerton confirmed a decision about whether to float will be made in the next few weeks. New Look declined to comment.
As well as IPOs, other deals are likely this year, writes Nicola Harrison.
Directors of specialist retailer HobbyCraft have hired Argyll Partners to advise on a management buyout.
HobbyCraft was put up for sale last month, and has been valued at about £70m. A source familiar with the situation said: “There has been a phenomenal level of interest from the investment community and private equity firms and bankers are keen to back the incumbent management.”
Chief executive Chris Crombie, who is leading the management buyout, declined to comment on Argyll’s appointment but said: “Many see HobbyCraft as an exciting roll-out opportunity with potential akin to Pets at Home.” Grant Thornton is advising HobbyCraft’s existing shareholders.
Over Christmas HobbyCraft’s like-for-likes jumped 10.6%.
Other private retailers considering a sale include Matalan.