Even an association with Taylor Swift couldn’t save Golden Goose’s IPO.
The Italian company, famous for its high-end, luxurious sneakers, today shocked the market by withdrawal notice of the nearly 600 million euros that emerged in Milan.
The offer appears to have everything right: star power, fashion appeal, outstanding financial performance and a €100 million foundation order from Invesco. The IPO is touted as one of the highlights of 2024.
It got off to a fast start. The offering was covered across the range within the first hour of closing the books. Joint venture bankers praised the “number of quality, long-term international investors” prepared to anchor the transaction. And all of this comes amid stellar IPO activity in Europe, with shares of microcomputer maker Raspberry Pi up nearly 50% since its London debut last week.
Despite these promising signs, the IPO faces a clear reality: the order book lacks demand from the underlying institutions, “only to last.” And Golden Goose’s controlling shareholder Permira cannot buy another turkey in the capital markets following the Doc Martens sale in London.
The first sign that something was wrong came when the price was announced last week. Briefed by those involved in the deal, the financial media spoke of an enterprise value of €3 billion, implying an equity value of €2.5 billion after net debt. and in any case a significant premium to Italian coat maker Moncler.
However, the implied market capitalization in the price range is 1.69-1.86 billion euros, “below expectations” and down to 25-30% off Moncler’s multiple. Then yesterday morning, the joint venture banks told investors that the IPO would be priced near the bottom at €9.75 per share.
The seven (!) IPO organizers sought to reassure the market, stressing that the offering had been repeatedly oversubscribed at that level. There is absolutely no reason to doubt the veracity of that statement. But there is every reason to ask what this “market color” really means: clearly much of that demand consists of a surge in orders from hedge funds trading on the new release schedule, along with a little interest from family offices. and personal bank accounts. With the exception of Invesco, the book is full of empty carbohydrates and lacking in protein.
Why is this deal so difficult? Golden Goose recruitment faces obstacles from 3M: (Doc) Martens, midcap and Macron.
One of the perennial debates in capital markets is whether sellers should be penalized if they corner investors on an earlier transaction. The usual answer is no: Memories are short, attractive opportunities may be too good to miss, and investors are paid to make money, not make money from the past. A good example involves the recent equity offering success of the acquisition company CVC.
Weeks before it went public, investors rushed to buy shares in the Frankfurt IPO of CVC-backed perfume retailer Douglas, only for the stock price to plummet. But investors flocked to CVC’s IPO in Amsterdam and hardly anyone mentioned Douglas. The reason is that CVC is considered the best asset in its segment and the price is offered at a significant discount compared to similar assets.
Permira did not escape the trap so easily. Some fund managers claim to “discount Permira” to reflect its mixed reputation in capital markets, according to some investors and bankers. While the banks may have gently tempered investor feedback, the Permira team must have known that their history was a problem for the buy side.
Like many private equity firms, Permira has an uneven record with IPOs in Europe.
When German software company TeamViewer emerged in 2019 and Polish e-commerce company Allegro in 2020, shares of both companies performed well for a time, although both were low. much higher than the current IPO price.
However, the decline in the share price of another Permira-owned footwear company, the UK’s Doc Martens, has cast a shadow over Golden Goose’s rise. Permira sold about a third of Doc Martens’ shares in early 2021 in a highly oversubscribed stock market debut, and the shares pushed up and were actually at a premium IPO in nearly a year – long enough for Permira to sell another 7% in early 2022.
Overall, Permira was able to earn £1.26 billion. But since then, Doc Martens has issued five profit warnings, sending the London-listed shares down more than 80% from their initial offer price.
What’s especially unfortunate is that Doc Martens halved its dividend and announced a sharp drop in earnings on the same day that Golden Goose announced its intention to float.
Against that backdrop, Golden Goose is not an attractive enough company for investors to cut much of Permira’s shortfall. It’s considered a pretty good asset – but not a must-have: some investors have cited, for example, fashion risks and product concentration, along with its small size. and its niche market position, are the main concerns, and the stock would be a mid-cap company. in Milan, with limited liquidity in the secondary market.
And this leads to the next problem for European issuers: mid-cap IPOs have less margin for error. Investors have seen how trading volumes have dropped and are therefore careful not to take too large a position. They also demanded greater price concessions.
One problem with this deal is that even with a price tag of just under 600 million euros (including green shoes), the scale of the deal is probably too large. The offering includes €100 million for Golden Goose and sales of up to €495 million for Permira. Ideally you should allocate around 400 million euros (two-thirds) to fundamental or “buy only” fund managers. Invesco platform order worth 100 million euros can be done, but it’s hard to allocate more than 50% to other long-only investors – you need them to buy in the secondary market and anyway then you also told them that the deal was oversubscribed multiple times. .
That means (formerly Invesco) the underwriters need total long-term buying demand of around €600m – a tall order for a market capitalization of €1.75bn. The right move would probably be to scale back the Permira sale, even at the cost of some after-market liquidity.
In any case, the IPO cannot create the necessary underlying demand. Large mutual fund groups appear to have stayed away.
In other words, the deal may have been oversubscribed, but if the underwriters had issued shares in the deal, Golden Goose would almost certainly have laid a big nest egg. A double-digit percentage drop on the first day would be a bad look for a luxury company and a damaging event for Permira’s reputation.
There are many dynamics and strategies in trading. A third factor affecting the deal was beyond the control of Golden Goose, Permira and their army of underwriters: the day after Golden Goose set the price, French President Emmanuel Macron called an election. snap parliamentary election after far-right parties dominated European elections.
The announcement came at an inopportune time. American investors have flocked to Europe like passengers on a cruise ship docking in Venice. And luxury goods are one of the areas where Europe excels and American funds cannot be found on domestic exchanges. The Golden Goose deal is set to attract major US money managers.
But Macron’s announcement sparked a sell-off in European stocks, including luxury names — not a bloodbath but enough to give American investors pause. The main pricemaker, Moncler, traded down 7% on Golden Goose’s offering. U.S. participation in European IPOs is sometimes derisively called “tourist money,” and tourists tend to return home at the first political trouble.
In short, Permira and Golden Goose probably did the market a big favor by backing out of the deal and sparing investors an immediate loss in market value. The failed offering leaves an open verdict on whether the market is open to the significant number of mid-cap IPOs to come.
