Boot maker Dr Martens is somewhat of an iconic brand, and the company has said that it is going to be seeking a UK listing this year. The company is currently owned by private equity firm Permira, which acquired it in 2013. At the moment the plan is understood to be to list between 25% and 40% of the company at a valuation of around £1 billion.
This is likely to be one of the hot UK IPOs in Q1 with plenty of retail and institutional interest. The usual suspects among the investment banks, including Goldman Sachs, Morgan Stanley and Barclays are going to be assisting. We are expecting to see considerable interest from retail investors largely because of Dr Martens’ strong brand which stretches back to the days of the British punk rock scene in the 1970s.
Dr Martens shares: 2020 numbers looking good
Dr Martens looks to be in fairly rude financial health compared to the early 2000s when it nearly went out of business entirely. In the six months to the end of September it reported an 18% gain in revenues to £318m, while in the last financial year (to end of March 2020) revenues were £672m on £184m in earnings.
“It is certainly true the DM brand, as it was colloquially known in the 1960’s and 1970’s, has retained a resilience that has spanned the decades, however the durability of the boots does appear to have declined in recent years,” observed CMC Markets analyst Michael Hewson. “The hope is that these problems have been addressed, while the motives behind the sale will also need to be addressed, almost one year after Permira diversified the business, paying £1.3bn for trainer brand Golden Goose at the end of February 2020.”
Hewson warns investors to take a close look at the debt situation in the run up to the IPO. He notes that some IPOs have struggled with debt leading to the subsequent failure of the business, like the AA and Debenhams. In both these cases, these are strong UK brands, but they ended up being unable to address the mountain of debt.
CEO Kenny Wilson joined Dr Martens two years ago and is in line for a stake in the company worth some £58m. Investors may recall that he also used to work for Cath Kidston, which collapsed last year.
Some caution around IPO price getting ramped above reality
Retail consultants are cautious about the IPO price, especially at a time when the high street fashion sector is being bashed about by COVID. Dr Marten has been putting in some good numbers recently, and seems to have successfully embraced digital sales and distribution, including overseas. This is going to be essential for long term survivability.
On the debt front, Dr Martens had £65m in net debt at the end of March 2020. Some £60m left the company in 2019 to pay dividends and another £35m in 2020. Only existing shares are going to be sold; there will be no issuance of new shares. We still have ot wait to hear just how many shares Permira is going to be unloading onto the market here.
It’s currently a tough market for retail fashion right now, but we like the sound of CEO Wilson’s plans for expansion in Asia and the US, if he can make that happen.
