Rolex retail IPO can avoid fate of buyout cast-offs

Rolex retail IPO can avoid fate of buyout cast-offs

Private equity ownership has not been a happy experience for many UK retailers. Watches of Switzerland may be the exception. Buyout firm Apollo Global Management, which bought the UK-based seller of high-end timepieces and jewellery in 2013, is planning an initial public offering that will value the company at up to 660 million pounds.

The watch hawker, which operates 146 stores in the United Kingdom and United States, has a chequered past. It was seized by Iceland’s Landsbanki after previous owner Baugur Group defaulted on its debt. Since then, however, it has fared better than other retailers in the conglomerate’s former portfolio, which included the Oasis fashion brand and troubled department store House of Fraser.

The IPO will halve Watches of Switzerland’s last reported net debt of 239 million pounds. At the top end of the mooted price range, that implies an enterprise value of 11.5 times its EBITDA of 68 million pounds in the year to the end of January. That is lower than groups like Kering and LVMH, which make some of the products that appear in the retailer’s displays. But a discount is logical: though Watches of Switzerland’s 6% operating margin is healthy by retail standards, it is less than a third of what those luxury groups enjoy.

Chief Executive Brian Duffy, who previously held senior roles at Ralph Lauren, is nevertheless delivering rapid growth. EBITDA has increased at an average rate of 35% a year since 2014, helped by tight cost control, opening stores in airports, and luring tourists and other wealthy buyers who spend an average of 4,409 pounds on a timepiece.

Future growth expectations depend on Watches of Switzerland repeating that trick in the United States, where it acquired a chain of stores in 2017, and where the market for luxury watches is still highly fragmented.

Brands like Rolex and Hublot, whose watches can sell for as much as 114,000 pounds, are snooty about where their products are sold. That raises the barrier to new entrants and limits the scope for disruption by online retailers. As long as buyers insist on seeing the baguettes on their pricey timepiece in real life before parting with their cash, Watches of Switzerland can dodge the private equity curse.

Watches of Switzerland Group, a retail chain selling luxury watches like Rolex and Breitling is planning to list on the London Stock Exchange in early June.

The company, which operates in Britain and the United States, is planning to price its initial public offering at between 250 and 277 pence, giving it a market capitalisation of between 610 million and 660 million pounds.

The company, which is owned by buyout firm Apollo Global Management, plans to use the proceeds of the listing to pay down debt. It will issue new shares worth 155 million pounds, and the IPO will raise a minimum of 200 million pounds.

Copyright Reuters, 2019

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