PRE-RELEASE VERSION
Prada s Hong Kong IPO (Abridged) ’
PRE-RELEASE VERSION In March 2011, preparations for Prada SpA’s initial public offering (IPO) were under way. The Italian luxury goods and fashion house was due to go public in Hong Kong in June. In the past, four attempts had been canceled due to adverse market conditions. Fifth time lucky? Prada, a leader for luxury leather goods, ready-to-wear, shoes and accessories (Exhibit 1), had 8,000 employees, €2bn in sales, and presence in all key markets through four brands: Prada (79% of sales), Miu-Miu (18%), and footwear brands Church’s and Car Shoe (2% and 1%). Prada was founded in 1913 when Mario Prada opened a luxury leather goods store in Milan. In the 70s, his granddaughter, chief-designer Miuccia, partnered businessman Patrizio Bertelli to structure and expand the group. They were married in 1987. Prada’s avant-garde/utilitarian style captured the 80s ’ spirit. Success ensued with distribution in select department stores, and in Prada’s network of directly operated stores (DOS) which allowed higher margins. In the 90s, Prada acquired brands to build an empire à la LVMH or Gucci but nearly collapsed under acquisition debts. Most brands were divested and Prada had to restructure its debt. IPO plans were foiled twice by 9/11 and twice again by the global crisis of 2007-08. The reshaped Prada now focused on both same-store (like-for-like) organic growth and DOS network expansion, a strategic dimension in which Prada trailed its main rivals. In particular, China’s fast increasing affluent classes made it the key growth market for luxury. Prada remained family-owned: Miuccia, her siblings, and Patrizio owned a holding company,
PRE-RELEASE VERSION Phase III was about marketing and executing the issue. A pre-deal research report had been sent to over 1,500 investors. T he banks’ analysts would then grill Prada’s leadership (analyst meeting ) and start touting the IPO globally to financial institutions ( investor education). With two weeks to go, Prada’s management would fly around the world in a tightly-scheduled series of meetings with institutional investors (roadshow). In parallel, the banks would collect investors’ indications of interest in share allotments at different prices (book building ). The IPO price would be set based on that book of demand and on market conditions. As per a firm commitment contract, the banks would buy all shares issued at a 1.9% discount ( spread ) to that price, ensuring all shares were sold at the IPO price for a fee of 1.9% of the proceeds. Shares would then be allocated across investors at the banks’ discretion, large, well-known, long-only, long-term, bullish investors being favored, and trading would start. On average for Hong Kong IPOs, the firm’s stock price would rise 15% on the first trading day (IPO underpricing ). A greenshoe option allowed the banks to increase the offering by 15% in case of large excess demand (oversubscription), the extra sale shares coming from the Holding. But all this would come later. For now, setting a price range palatable to investors and Prada was critical. For IPOs, analysts relied mostly on multiples, and used DCF only as a control. 1 Three peer groups were formed: Core Luxury Tier 1 (Bulgari, Burberry, Hermès, LVMH), Core Luxury Tier 2 (Richemont, Tiffany, Tod’s) and an Asian Consumer Panel of consumer
PRE-RELEASE VERSION
Exhibit 1 Prada’s Brands, Product Categories and Distribution Channels (Directly Operated Stores (DOS) and Wholesale (WHS))
PRE-RELEASE VERSION Exhibit 3 Financial Data for Comparable Companies All amounts in millions of Euros except for stock prices.
Stock Shares Stock Local Price Outstanding Exchange currency 10/03/11 (€) (millions) Belle International Hong Kong (HKEx) HKD 1.32 8,404.3 Bulgari Milan (BIT) EUR 7.60 302.0 Burberry London (LSE) GBP 13.85 431.3 Hermès Paris (Euronext) EUR 154.94 105.2 L' Oc ci ta ne Ho ng Ko ng (HKEx) HKD 1 .8 3 1 ,4 53 .6 LVMH Paris (Euronext) EUR 113. 11 490 .6 Richemont Zurich (SWX) CHF 41. 35 575 .8 Tiffany New York (NYSE) USD 44.56 126.3 Tod's Milan (BIT) EUR 78.07 30.6 Trinity Hong Kong (HKEx) HKD 0.70 1,713.7 Coach New York (NYSE) USD 40.39 301.6 Swatch Zurich (SWX) CHF 84.41 148.7 PPR Paris (Euronext) EUR 108.92 126.3 Polo Ralph Lauren New York (NYSE) USD 90.40 97.8 Pand ora Co penhagen (CSE) DKK 41. 65 129 .6
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Market Cap (€m) 11,094 2,295 5,974 16,300 2 ,6 60 5 5,49 2 2 3,80 9 5,628 2,389 1,200 12,182 12,552 13,757 8,841 5,39 8
Debt (€m) 6 494 287 64 85 5,26 6 701 372 75 65 18 83 4,464 201 66
Cash (€m) 556 283 398 989 2 80 2,8 02 1,2 13 487 196 47 684 2,517 3,125 461 2 08
Net Net Net EBITDA EBITDA EBITDA Income Income Income Equity FY 2010A FY 2011E FY 2012E FY 2010A FY 2011E FY 2012E Beta 478 597 720 375 470 557 1.11 160 193 229 51 95 123 0.68 378 468 546 217 278 332 1.34 733 828 936 426 495 554 0.25 1 64 1 97 2 38 97 1 20 1 45 0 .9 8 5,295 5,965 6,635 2 ,286 2 ,93 6 3,3 63 0.9 9 1,572 1,947 2,150 1,019 1,33 0 1,5 17 1.1 2 512 572 636 255 296 339 1.91 194 220 246 108 123 139 0.47 44 62 79 30 43 58 0.76 935 1,064 1,176 538 646 719 1.34 1,214 1,341 1,499 786 942 1,060 1.12 1,957 2,188 2,390 897 1,078 1,275 0.82 661 774 862 359 420 461 1.29 361 470 568 231 34 4 4 35 0.4 0
4
Tax Rate 18% 16% 30% 33% 2 5% 33% 15% 34% 32% 34% 33% 25% 28% 40% 18%
PRE-RELEASE VERSION Exhibit 4 Financial Projections Prada forecasts (€m)
Net sales % growth EBITDA % Net sales Depreciation and Amortization % Net sales EBIT % Net sales Net income % Net sales Capital expenditures Working capital % of Net sales
FY 2008 1,648
282 17.1% 92 5.6% 190 11.5% 101 6.1% 159 271 16.4%
Actual FY 2009 1,561 -5.3% 290 18.6% 103 6.6% 187 12.0% 103 6.6% 118 259 16.6%
FY 2010 2,047 31.1% 534 26.1% 118 5.8% 416 20.3% 251 12.3% 174 321 15.7%
Business Plan FY 2011 FY 2012 2,392 2,804 16.9% 17.2% 652 814 27.3% 29.0% 135 159 5.6% 5.7% 517 655 21.6% 23.4% 333 432 13.9% 15.4% 247 281 375 440 15.7% 15.7%
FY 2013 3,173 13.2% 964 30.4% 177 5.6% 787 24.8% 527 16.6% 211 498 15.7%
ECM Team FY 2014 FY 2015 3,506 3,765 10.5% 7.4%
FY 2016 4,040 7.3%
30.4%
30.4%
30.4%
4.0%
4.0%
4.0%
133
133
133
15.7%
15.7%
15.7%
Exhibit 5 European Bond Market Data Government bonds 6-month maturity 1-year maturity 2-year maturity 5-year maturity 10-year maturity
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YTM 0.80% 1.21% 1.69% 2.71% 3.55%
Corporate bond indices AAA-rated bonds AA-rated bonds A-rated bonds BBB-rated bonds Liquid high-yield bonds
YTM 3.98% 4.12% 4.35% 5.09% 6.67%
5
