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Tide is turning for flotations

Abandoned by the fashion sector for the past few years, stock market listings are returning to favour, with SuperGroup leading the IPO resurgence

The taste for initial public offerings (IPOs) in the fashion retail sector is on the up, with the £395m listing of SuperGroup, parent of young fashion brand Superdry and the Cult Clothing chain, in March whetting the appetite of industry players such as etailer The Hut and young fashion menswear chain Blue Inc. They have both announced their intentions to list on the stock market, if conditions allow, later this year or early in 2011.

After years of stock market listings being abandoned by the fashion sector in favour of private equity backing or venture capitalist funding - the last fashion retail listing being in 2007, by Sports Direct - the tide is turning.

The SuperGroup flotation has shown there is still life in the IPOs market and as the equity markets begin to stabilise post-recession, market commentators are signalling that there could be more listings to come later this year or, more likely, early in 2011 following the general election and once retailers have traded through the crucial Christmas 2010 period.

Vital ingredients

Rhys Williams, institutional sales at FinnCap, says: “If it is the right opportunity then a flotation has the potential to get away; but only if it’s absolutely spot on. By spring 11, investors will have a clearer understanding of what the impact of the new government will be doing in terms of budgets.”

According to Freddie George, analyst at Seymour Pierce, which acted as the book builder - the firm that approached and encouraged investors - in the SuperGroup IPO, a company needs a few vital ingredients in order to float.

“It has to have a good track record and good prospects,” he says. “It should not be private equity backed and should have a good growth story. With that, a business has every chance of succeeding.”

Online retailer The Hut, which operates accessories website Mybag.co.uk, has raised £14m from investors including former Matalan chief executive Angus Monro in advance of a flotation, and the on-again, off-again New Look IPO is still bubbling under the surface, as the retailer waits, poised to resurrect its £1.7bn flotation when the market conditions are right.

New Look’s IPO plans were postponed in February when the process received ‘lukewarm’ support from investors and equity market conditions grew worse.

Blue Inc is bullish and is thought to be considering a £50m to £60m listing later this year or early next, in spite of the setbacks experienced by New Look.

Blue Inc managing director Steven Cohen won’t comment on which market he wants to float the business on and what kind of offering it will be, but he is keen to list Blue Inc in order to “realise the past four years of work” and float to fund growth overseas.

He says a flotation appeals “because it increases the company profile and makes it easier to get good property deals. It enables and funds growth and can de-risk some businesses.”

Debt-free businesses such as Blue Inc and SuperGroup provide attractive opportunities for investors because they can be confident the cash will be used to fund expansion and growth rather than to pay down existing debt.

However, the uptick in IPOs is not expected to come just from those businesses that have a debt-free position. Heavily geared private equity-backed retailers will also be primed to float, as backers who invested between 2004 and 2007 look to make their overdue exits after postponing their original strategic plans during the recession.

James Channo, corporate partner at Fox Williams, the law firm that advised SuperGroup on its flotation, says: “It was a relief that it raised the money and went ahead in the current economic climate, which shows good companies with good prospects are still able to raise money. It was positive for the market to get that float away.”

 

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