Europe’s IPO market is in most cases a buyers’ choice, with sellers having to take big discounts on new listings to get anywhere close to the demand required to complete a deal. Spanish conglomerate Puig is now testing whether investors are willing to pay up for quality blue chips.

This was the case before Easter with Swiss skincare conglomerate Galderma [SWX:GALD] which sources told this column wasn’t cheap but was high quality enough to make buysiders want to take part anyway.

Galderma’s IPO price translated to an enterprise value of around USD 17.3bn, around an 18% discount to a valuation of USD 21.1bn based off peers Alcon [SWX/NYSE:ALC] and L’Oréal [EPA:OR]. A decent discount but far less than the 30% IPO issuers were having to give away in deals last year.

The Swiss firm has risen over 17% since the listing.

Family-owned Puig is also deemed a high-quality must-have, as the owner of brands like Jean-Paul Gautier, Carolina Herrera, and Paco Rabanne.

ECM investors have noted that it is the largest assets that are commanding the most investor attention, with private equity giant CVC joining the pipe earlier today.

This means Puig is likely to be a crowded affair with investors fighting for allocations, even in what is likely to be a substantial IPO; Puig is raising EUR 1.25bn in primary proceeds and in its initial IPO documentation said it envisages a secondary component that is even larger.

Luxury peers

Puig is also a rare beast in that it is a family-owned asset coming at tremendous size meaning that it will not only have the liquidity profile that lots of investors will be looking for, but also a seller that is in theory more incentivised for stock to trade up after the listing rather than maximising profits at an IPO price like a sponsor might.

“This deal ticks all the boxes: big, high-quality, defensive, mature, profitable, and family-owned.  It’s one that investors like a lot,” said one source close to the IPO, citing peers such as L’Oreal and Estee Lauder as the sorts of listed luxury comparables that investors are using to value Puig.

Puig reported a record EUR 4.3bn in revenues and EUR 849m in EBITDA. Compared to last year, the company had revenue growth of 19% and an EBITDA growth of 33%.

Among its segments, Fragrances & Fashion accounted for 72% sales, Makeup 18%, and skincare at 10%. It had net debt of EUR 1.2bn at the end of 2023.

This news service has identified luxury consumer products group Coty [EPA, NYSE: COTY], New York City-based cosmetics group Estee Lauder Companies [NYSE:EL], French luxury giant LVMH [EPA:MC], and L’Oréal as possible comparables for Puig.

The peers have an EV/EBITDA range between 14x (LVMH) and 23.7x (L’Oreal), with an average of 16.7x.

A valuation based on the peer average would give Puig an enterprise value of EUR 14.1bn, given its EUR 849m 2023 EBITDA, and a possible valuation of as much as EUR 20bn, should it price directly comparable to L’Oreal.

Premium price possible?

A report in the Spanish press noted that Puig might be eying a post-listing market cap of between EUR 10bn and EUR 12bn; the company would then have around EUR 1bn of debt after the IPO, the report noted.

An EV of EUR 14.1bn, including EUR 1bn of debt would translate to a market cap of EUR 13.1bn. A Galderma-style 18% discount would represent a market cap of around EUR 11bn, in line with the reported target.

However, given how highly some of its peers, notably L’Oreal, trade several sources noted a higher valuation might be achievable.

On a valuation average between just L’Oreal and Estee Lauder, its closest peers according to the first source, Puig would have a fair value EV of just over EUR 16bn and a market cap of around EUR 15bn, based off EUR 1bn of post-IPO net debt.

An 18% discount to that number would be over EUR 12bn and should Puig be pegged closer to L’Oreal, the valuation could be even higher.

A EUR 12bn equity valuation would be around a 37% discount to L’Oreal, possibly too great if the company and investors deemed that its closest peer.

“Some investors are valuing Puig at over EUR 14bn in terms of its enterprise value,” confirmed a second source. “It’s obviously still early days, but it is a super asset in a very important thematic and a high-quality business with a strong level of interest.”

A third source said he thought a valuation range of between EUR 12bn to EUR 14bn would make more sense, given investor feedback, the company’s numbers, and its peers.

He added that any valuation closer to EUR 10bn or below would be “ridiculous” and that an initial range of EUR 10bn to EUR 12bn would be too low for the company.

The third source noted that the company’s banks were engaging with some of the top institutional investors in Europe and would not be short of high-quality demand to fill the book.

A fourth source close to the IPO said that EUR 14bn valuation was certainly not out the realms of possibility but he thought the family was still likely to be a little conservative on the valuation to ensure the best possible trading afterwards.

Given its peers, and likely demand, Puig might be able to be more ambitious on price, based on a narrower peer set, or might choose to be more generous to buyside, to help guarantee a greater aftermarket pop.

All will be revealed when the range is set, likely later this week, according to two of the sources speaking to ECM Pulse.

Puig did not respond to requests for comment by the time of publication.