The 11th-hour cancellation of the initial public offering (IPO) of primary and secondary shares by Italian luxury footwear retailer Golden Goose on Euronext Milan, marshalled principally by a sell-down by British private equity firm Permira, caused a sharp intake of breath. Especially as the lead underwriters had put out firm signals that it was a slam dunk, over-subscribed done deal that even came with a €100 million (US$106.9 million) anchor order from cornerstone investor Invesco.
Permira had previously said it would offer 43.6 million shares at the maximum price of the range and 42.95 million at the minimum price. The €9.50 to €10.50 price range the deal’s lead underwriters put out (for a market cap range of €1.693 billion to €1.86 billion), translated into proceeds to Permira of €408 million to €458 million. The company had been scheduled to piggyback on Permira’s sell-down by issuing new shares to raise €100 million to strengthen its capital structure and reduce debt.
On June 13, Golden Goose had published a notice of conditional full redemption of its due May 2027 €480 million senior secured floating-rate notes, using proceeds of the primary share offering, cash and available debt lines. The redemption date was set for June 25 but the obligation to redeem was conditional on the start of trading of the shares on Euronext.
The company, a perfect mix, it claims, between iconicity and innovation, pulled the deal on June 19, citing the results of the recent European Parliament elections and the associated calling of France’s parliamentary elections. This, it said, had impacted the performance of European markets and the luxury sector in particular. It all sounded a little implausible based on the signals being put out by the company and its underwriters.
Yes, markets were choppy in the aftermath of the European parliamentary elections and French President Emmanuel Macron’s related decision to call elections in France. But the mark-down in prices was hardly brutal. The Stoxx Europe Luxury 10 index fell 4% between June 7 and June 14 but had regained some of that lost ground by June 21.
Failing the smell test
Something didn’t smell quite right. First of all, the valuation inferred by the IPO price range came in way below expectations even though the company said that it had engaged widely with investors, had received positive feedback, and that the book was covered across the price range in the first hour of bookbuilding and was well oversubscribed across the range.
Which leads to the second oddity: the IPO price set by its throng of investment banks (Bank of America, JP Morgan, Mediobanca and UBS as joint global co-ordinators; BNP Paribas, Citi and UniCredit as joint bookrunners; Lazard as financial adviser) was very close to the bottom of the range at €9.75 per share. They might just have been cautious given market jitters but if the book was so heavily over-subscribed, you might have imagined they would have been a little more ambitious.
Permira, which bought Golden Goose in a secondary buyout from Carlyle in 2020, clearly didn’t want a flop on its hands hence the spin that the current market backdrop wasn’t the right environment to take the company public.
Permira effect
Former senior ECM-banker-turned-expert-market commentator Craig Coben cited a series of more down-to-earth reasons for the deal being pulled: it didn’t come close to generating enough fundamental long-only institutional demand; puffed-up orders from hedge funds; an underwhelming enterprise value implied by the IPO price range (a discount to valuation peer Moncler); the fact that Golden Goose was destined to be a not very liquid mid-cap stock and not a must-own; and market wariness about Permira’s track record.
The latter point about Permira was a point made unrestrainedly and effusively by Wall Street veteran Brian McGough, co-founder and head of retail at research platform Hedgeye Risk Management in a short video before the deal was cancelled.
McGough actually said he was coming up positive on the IPO but his reasoning was interesting: “If you look at every IPO [Permira] has brought to market over the past four years, they’re all flat-out stinkers. And that’s the elephant in the room on this one – here we go, here’s another stinker these guys are bringing to the market”.
On pricing of 10 times ebitda (earnings before interest, taxes, depreciation and amortization) when peers are trading closer to 18 times, he added: “I think what the bankers did, they actually said [to Permira] we gotta throw people a bone on this one because you’ve hosed the street, you’ve hosed investors, they haven’t made money on a single deal of yours and that’s going to be their biggest beef. You’ve gotta take it on the chin on valuation.”
Coben had similarly suggested that for the same reasons Permira was anxious to avoid what he called a capital markets turkey and protect its reputation among investors.
Pretentious
So, the company and Permira are left reassessing IPO plans. And Golden Goose’s Dreamers – which is what it really irritatingly calls its community of 1.5 million people (which I’m assuming are its customers) – will have to dream on. Mind you, to pay up to US$700 for a pair of pre-distressed grungy sneakers, you probably need to be in some sort of a dream-like state, no matter that Taylor Swift, Selena Gomez and Hilary Duff have (so I read) been seen sporting a pair.
The company’s marketing must be one of the most pretentious ever. Its website is full of spaced-out clichés. Like the company was “founded on a passion for all things that are perfectly imperfect …”. It even has a Golden Manifesto that has unforgettable lines like: “Golden Goose is a journey of love. We are a community of Dreamers who believe in the power of doing things together. We strive for uniqueness, which for us is synonymous with authenticity. Life is authentic. Don’t be perfect, be Younique”.
The incongruity between the company’s hipster, rather effete, image and the hard-nosed realities of getting shares sold at a competitive valuation couldn’t be starker. Dream on …
