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Summary
- CEO and founder of The Hut Group Matthew Moulding is set to get the highest payout in the UK corporate history
- In 2020, the company had the largest IPO listing on the LSE that valued the company at £4.5 billion, pricing at 500 pence per share
- On 16 September on the day of listing, the shares of the company jumped 32 per cent amid huge demand from investors
The coronavirus pandemic has made some companies go bankrupt and people lose money. But for a few companies, it has turned their fortunes forever. Some companies have made windfall gains during the pandemic, especially belonging to sectors like online retailing, gaming, biotech, among others.
Health and beauty firm The Hut Group plc came out with the largest IPO of 2020 at the London Stock Exchange. The company was valued at £4.5 billion at the time of listing on 16 September. Its value jumped to £5.9 billion during the same trading day amid huge investor demand.
Founded in 2004, THG works as a technology provider supporting big brands such as Nestlé, Unilever and Danone to sell direct to consumers. After the windfall gains on the listing, the CEO’s wealth is set to grow by £830 million due to this meteoric rise of the company’s share prices. It could multiply further in case the company’s market valuation rises.
Besides Moulding, THG’s chief financial officer John Gallemore and commercial director Steven Whitehead will be also rewarded with such payouts after the market value of the company’s shares breaches certain levels. It is to be noted that all the executives are eligible for such bonuses if the company successfully reaches £7.25 billion before 31 December 2022.
A higher wealth tax?
The public debt of the British government currently stands at more than £300 billion. Despite that, the government is continuing with its stimulus support since the pandemic is not over yet.
A higher tax on wealth will bring in revenue to the exchequer the cost of people on whom the pandemic had the least bearing.
Other existing tax revenue streams of the government are transaction based. For example, taxes on salary income, sales, property, excise, or customs are difficult to be raised further without hurting the vulnerable sections.
During the period of low business activity like the ongoing pandemic times, the marginal utility of any capital and revenue expenditure gets accentuated as it can help arrest a market slide. During these troubled times thus, wealth stored without being put to gainful use is, particularly taxing, and its value unlocking would go a long way in bringing the country out of the current state of misery.
Rise of a unicorn
The Hut Group was founded in in Manchester by Moulding with an initial investment of £500,000. The company is regarded as one the highest valued unicorns or successful startups in the country. The company initially created white label websites for Tesco, WHSmith, ASDA and Argos Entertainment and focused on entertainment products like music and gaming.
At the beginning, it raised funds from private investors like Sir Terry Leahy, former CEO of Tesco, and Lord Rose, former chairperson of Ocado. However, after a while, institutional investors like KKR, Balderton Capital, Blackrock, Sofina and Old Mutual Global Investors started taking interest in the company and made substantial investments. These groups made windfall gains since the listing of the company.
The company made a series of acquisitions over the years which helped it grow substantially. Most prominent names in its list are Zavvit, IWOOT (I want one of those), Myprotein, Coggles, Preloved and UK2 Group.
The group 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 7,000 employees worldwide and its revenues exceeded more than £1.14 billion.
Recent growth in online retailing has made companies like The Hut Group highly valued by investors. The company was being funded by PE investors till now. It intends to use this opportunity to provide an exit route and raise resources for expansion.
The promoters are also careful against hostile takeover bids and ensure adequate control over the company management.
Value creation
There has been a massive value creation in the online retail industry since the pandemic started. The disruptive changes in retail have turned online retailers into quick value creators.
Companies like The Hut Group took this opportunity to raise funds. Such valuations were not achievable in normal economic conditions. Moreover, these companies have a better opportunity to deploy resources in an efficient manner. The investors are confronted with a difficult situation as investment firms are conserving cash because of the market conditions. Their existing investments need to be funded timely, otherwise they run a risk of collapse.
Thus, monetizing an existing investment which has reached a certain level of growth is an excellent way to raise cash. Right now, the listing price that The Hut Group is looking for is probably the highest opportunity value an investor group can achieve for their investment, given the present state of the global economy.
Share price movement of THG Holdings plc (LON:THG) since its listing
Source- Thomson Reuters (since listing)
As on 16 November, the shares of THG Holdings plc have been trading at GBX 641.00 per share (10.00 AM GMT+1), gaining 1.26 per cent over the previous day’s close.
