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Summary
- The online retailing firm plans the biggest IPO on the London Stock Exchange this year with a valuation of £5 billion.
- The listing of the company is carefully moulded to protect it from any hostile takeover bids. The terms of the listing include an unusual incentive scheme which allows the promoter to increase his stake in the company if its market value increases by 40 per cent in the two years after.
- The reason being cited by the company for the listing is the request by several of its PE investors for liquidity, and the upsurge in its business in the past few months requiring immediate capital funding to expand.
British Online retailer Hut Group has decided to debut at the London Stock Exchange. The timing of the IPO, which may surprise many as the pandemic continues to ravage the country's economy, actually suits the prospects of the company. The massive growth seen in online retailing during the past few months has made companies like the Hut Group the most valued in the eyes of potential investors. The company which till now was being funded by PE investors intends to use this opportunity to provide an exit route to them as well as raise resources for expansion which during this period has the maximum opportunity for the company. The promoters, however, are also very careful to take adequate safety measures to protect against hostile takeover bids and ensure adequate promoters’ control over the management of the company.
How has been the company’s performance so far since inception?
The company was founded in 2004 in Manchester. Starting out with an initial investment of £500,000, the company initially created white-label websites for Tesco, WHSmith, ASDA and Argos and focused on entertainment products like music and gaming. Over the years it raised funds from private investors like Sir Terry Leahy, former CEO of Tesco, and Lord Rose former Chairperson of Ocado. While it also sold shares to institutional investors like KKR, Balderton Capital, Blackrock, Sofina and Old Mutual Global Investors.
The company also made a series of acquisitions over the years which helped it grow inorganically. Of the most prominent names in its list of acquisitions include Zavvit, IWOOT (I want one of those), Myprotein, Coggles, Preloved, and UK2 Group. The company now operates more than 100 websites internationally, selling fast-moving consumer goods (FMCG) direct to customers through its proprietary platform. By 2019 the company had more than 7000 employees worldwide, and its revenues exceeded £1.14 billion. The company is regarded as one of the highest valued unicorns (successful startups) in the country.
Why is it going for an Initial Public Offering (IPO) now?
The disruptive transformation that the coronavirus pandemic has brought to the Retail industry has made online retailers some of the quickest value creators in the country. Many companies like the Hut Group have taken this opportunity to monetise themselves and raise as many funds as they can. The valuations that these companies have now could have never been achievable in normal economic conditions, nor would these companies have got a better opportunity to deploy their resources most effectively.
Secondly, the situation with the company’s investor groups would also expectedly be difficult because of the pandemic. Most of these investment firms are now running sort of cash because of the market conditions and most of their existing investments also need to be timely funded least they run the risk of collapse. Thus, monetising an existing investment which has reached a certain level of growth is an excellent way to raise cash to meet these essential requirements. The listing price that Hut Group is looking right now is probably the highest opportunity value the investor group can achieve for their investment given the state of the British and the world economy.
How is the company safeguarding itself from hostile bids?
The company is taking adequate measures to safeguard its interest by putting in certain unique clauses in its listing so that hostile takeover bids can be warded off. There is an unusual clause in the listing that gives the promoter the incentive to raise his stake in the company to 25.1 per cent from the current 20 per cent of its market value increases by 40 per cent within two years after the listing. This stake levels will give the promoters enough voting strength to block any takeover or delisting bid of the company. However, this clause means that the company would list on the standard segment of the exchange and not the premium segment, which would consequently ensure that its shares would not be bought by index trackers.
How it plans to spend the issue proceed?
With a valuation of £4.5 billion, the company is planning to raise £907 million. The company already has plans to transform its current business model. It plans to sell off some its extensive property interests and lease them back whereby so value unlocking can be done on that account. The funds generated would be used to expand the company’s operations in its existing as well as potential new markets.
What is the outlook of the online retail sector in the UK?
The online retailing sector would continue to grow at an accelerated pace in the foreseeable future. The continuing pandemic scenario would ensure that people would stay apprehensive and prefer purchasing merchandise online and getting them delivered as far as practicable rather than venturing outside and taking the risk of getting infected.
Like Hut Group there are also several other online retailing companies whose valuations have increased astronomically in the recent past because of the coronavirus pandemic and the ensuing lockdown. The listing of Hut Group could be the very beginning of a host of other online retail companies that may now come forward to get themselves listed taking advantage of the current market situation. If all goes as per plan, the shares of Hut Group may start trading on the London Stock Exchange soon.
