By Ted Vaughan, firstname.lastname@example.org
The year 2012 was the best year for retail IPOs since 2002 — S&P Capital IQ reported seven offerings for the year — and when we released our 2013 IPO Outlook Study earlier this year, 30% of capital markets executives expected initial public offerings (IPOs) in the retail and consumer products space to continue to grow in 2013. Now that we’re well into the second half of the year, how have those expectations fared?
Through the first half of this year, 2013 is poised to do even better than 2012. We’ve seen eight planned or executed IPOs from a broad range of retail and consumer products brands, much of it driven by private equity firms. Some of the most notable IPOs have included a planned $100 million offering from luxury retailer Neiman Marcus, as well as offerings for Claire’s, COTY, RetailMeNot, Fairway and Noodles & Company. China-based online retailer LightInTheBox.com also presented the first public offering of a Chinese company in the United States this year, successfully raising $78.9 million in the process. Robinsons Retail Group, an operator of hardware stores, supermarkets and department stores in the Philippines, indicated plans to file an IPO in their home country, but have placed it on hold until market conditions improve.
Some key factors underlie this relatively robust IPO activity. In particular, the first half of the year is a ripe time for retail IPOs. Companies are often coming off a high from holiday sales (which can now extend well into January), so they not only have the resources to support an IPO filing, but also the strength of their fourth quarter results bolstering the company’s attractiveness to potential shareholders.
At the same time, the U.S. economy is in the midst of a modest recovery. Job numbers are slowly starting to stabilize, with unemployment remaining steady at just below eight percent. Housing prices are inching upward, interest rates remain low, and consumer confidence has been improving as temperatures warm and promotions have encouraged increased spending. Though the retail sector continues to see only soft growth, May and June have both seen stronger same-store sales than those observed earlier in the year, indicating that consumers may be loosening their budgets a little more.
Another factor likely influencing the these IPOs — as well as those that may be headed down the pike — is growing international interest in going public in the U.S. While international markets have attractive qualities, such as high growth short-term opportunities, they also carry more risk. With the U.S. economy on the mend, the U.S. markets offer longer-term growth and stability. The growing competitiveness of online retail and rise of omni-channel retailing are also driving companies to investigate new strategies for raising the funds necessary to make investments in online and mobile technology.
The second half of the year is not likely to be quite as busy on the IPO front. In July, we released our IPO Halftime Report exploring capital market executives’ assessment of the first half of the year, and their projections for the second half. This time, 28% of executives surveyed expect an increase in retail IPOs for the rest of the year, and in many ways, this is unsurprising. The third and fourth quarters of the year are times of heavy promotional activity and end-of-year planning for retailers as they ramp up their back-to-school and holiday shopping activities, pushing IPO planning to the back burner. At the same time, the restaurant and food & beverage sectors, which are less influenced by the holiday calendar, may proceed as planned with IPOs. A few additional offerings over the next six months puts 2013 on track to meet or exceed 2012’s numbers, rounding out a solid year for retailers looking to go public.
If your company is considering entering the public markets in the next year, providing a promising value proposition to potential investors should be a top priority. You should be able to demonstrate steady annual growth, as well as the ability to both predict quarterly earnings in the next year and to hit those targets. Many of this year’s IPOs came on the heels on strong earnings results and future projections. You should also carefully track investor appetites. Neiman’s planned IPO comes on the heels of a relatively strong stretch of growth for the luxury retail sector, as high-income consumers have weathered the economic storm over the past year.
Finally, you should clearly outline the ultimate goal of the IPO. How you use your proceeds, in many ways, will determine whether shareholders will see value in investing. Will you be using proceeds to pay down debt, make investments in new technology, or perhaps even acquire another firm? Any IPO must be rooted in solid financials and a clear path forward, both for your own company and for potential shareholders.
Ted Vaughan is a partner in the Retail & Consumer Products practice at BDO USA, LLP. He can be reached at email@example.com.
By Ted Vaughan, firstname.lastname@example.org