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Investors consider perils of the single-product IPO story

It is always a big event when a well-known consumer brand comes to the IPO market. But a great name is not a substitute for a solid equity story.

The IPO market is set to feature several popular consumer brands: in Italy, sponsor Permira has appointed a financial adviser for the IPO of Golden Goose.

Meanwhile, L Catterton-backed German footwear maker Birkenstock is expected to complete a US IPO on the back of increased interest in the brand – and tangentially, after its appearance in the recent Barbie movie.

A well-known brand is an easy sell at IPO, according to an ECM banker, in the sense that it is often associated with established companies with high brand recognition and consumer success, and in some cases with elements of heritage and tradition.

Finding the right fit

A similarity between Golden Goose and Birkenstock is that both companies are known for making premium shoes.

Comparables for Golden Goose could include other single-product focused names in the footwear industry, like US-based Crocs [NASDAQ:CROX], Swiss footwear brand ON Holding [NYSE:ONON], and UK-based Dr Martens [LON:DOCS].

“ON attracted some skeptical views, but it has been growing a lot, especially when it comes to its US business, and now it’s seen as a great precedent,” said another banker.

Golden Goose reported revenues of EUR 501m and adjusted EBITDA of EUR 167.5m, according to its 2022 sustainability report.

Crocs had a 2022 EV/EBITDA ratio of 7.3x, while Dr Martens had a ratio of 7.1x, and On Holding had a ratio of 45x, according to data provided by Fidessa and compiled by Factset. The average of the three is 19.8x.

If Golden Goose was valued at the average of the three it could achieve a value of around EUR 3.3bn, according to predictive analytics by this news service.

Birkenstock reported sales of EUR 1.24bn and adjusted EBITDA of EUR 434.5m in 2022.

If the German firm were valued at the average of the three firms, it could achieve a value of around EUR 8.5bn. Considering a 20% discount for investors in the US, it could command a valuation of around EUR 7bn.

According to reports, Permira is seeking a valuation of EUR 2.5bn for Golden Goose, around 24% below the peer average calculated by this news service.

If the IPO of Birkenstock is successful, Permira could persuade investors to accept the EUR 2.5bn valuation it is seeking.

Walk in investors’ shoes

A third ECM banker said, though, that an equity story tied to a single product — even if it is a luxury piece of footwear, a watch or a handbag— can be a weakness and some investors see the reliance on a single product as dangerous.

A lack of diversification prompts doubts about the sustainability of financial performance and whether firms can withstand the natural rise and fall of consumer trends.

“It can be very vulnerable to external factors,” said one of the bankers, with the second one adding this risk is often raised early in investor meetings.

Two of the bankers agreed that adding to the equity story, whether it is details around a clearly defined ESG strategy or a push towards more organic growth, can help obviate mono-product fears, especially in a fragile economic environment.

“It should be more about who you are as a company beyond that product, and what your ambition is for the next 10 years,” he said. “Investors won’t celebrate your flashy items; they will question what the future direction is and how you plan to achieve objectives beyond present sales.”

“You better have these answers ready,” said the third banker of investor questions on diversification.

Investors don’t like all their eggs in one basket.