After all the feverish speculation of the past few weeks, there is now little doubt that a raft of retailers is preparing to float in the new year.
Concrete evidence came last week, when Pets at Home revealed it had appointed JP Morgan Cazenove to assess a potential IPO. The button has not yet been pushed but the practicalities are well advanced.
But as a new wave of retailers prepares to come to market, investors – unless they have very short memories – are likely to take a long cool look before agreeing to part with their cash. They will remember the disappointments of Debenhams’ and Sports Direct’s chequered histories as quoted companies.
Potential shareholders will dissect retailers’ growth stories. How convincing are they? What is the likelihood of pitfalls of the sort, for instance, that have undermined key planks of Sports Direct’s growth agenda such as internationalisation?
How convincing are the management and what evidence is there that they will remain committed to the business, having potentially realised a handy cash sum through a float, and that they have the skills to deliver the next phase of strategy. How transparent is the business? How strong is the board? Do the chairman and non-executives have sufficient stature?
How much debt is being carried? To what extent is it covered? Has that debt been used to invest in the business or to pay dividends under the period of private ownership? What stake will the private equity backers commit to retaining and for how long?
The biggest question is why a company is floating. The answer investors want to hear – and it must be compelling rather than pat – must be about the future and how past success provides evidence to support ambition.
There will always be appetite for good retailers and all the evidence is that those such as New Look and Pets at Home fit the bill. But, in contrast to the old Monty Python sketch, they should definitely expect
the Spanish Inquisition.
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