The Italian luxury goods house said Thursday that it will go ahead with an initial public offering on the Hong Kong Stock Exchange, although it did not specify a time frame or the size of the stake to be sold. Analysts believe an IPO could happen as early as this spring and value the company up to $9.5 billion.
It will be at least the fourth time the firm has aimed for an IPO, having called off the last several attempts due to weak global markets.
“Our strategy of expansion worldwide, carried out with a strict cost-control policy, led to a significant growth in revenues and profitability and further reinforced our position as one of the leaders in the luxury goods market,” stated Patrizio Bertelli, chief executive officer of Prada. “Strengthened by these results and confident in the future development of the group, we can now face the coming challenges with serenity and seize the best opportunities offered by the international capital markets.”
Banca IMI-Intesa Sanpaolo Group, UniCredit, CLSA-Crédit Agricole Group and Goldman Sachs will act as joint global coordinators and joint book runners. Bonelli EredePappalardo, Slaughter & May and Davis Polk & Wardwell will be the firm’s legal advisers.
The pool of banks is no surprise given that Intesa owns 5 percent of the company, with Miuccia Prada and Bertelli controlling the majority 95 percent stake through Amsterdam-based Prada Holding B.V. Davide Mereghetti, a top manager of important corporate clients for UniCredit, last year joined the Prada board, succeeding Brian Blake, formerly chief operating officer.
Intesa, UniCredit and Crédit Agricole were among the banks that granted Prada a $455 million loan last July to be used to refinance a long-standing debt and to fuel the company’s retail growth. The loan was due to be repaid by 2012. Prada reduced its debt to 429 million euros, or $566.2 million, at the end of October, compared with 485 million euros, or $693.5 million, at the end of January 2010.
At the time, extension sources speculated it set a deadline for Prada to seek an IPO, depending on market conditions.
For months, a listing in Hong Kong was rumored to be Prada’s top choice. Given China’s enormous potential for business, an IPO in the historic gateway to the country may be regarded as the next logical step for luxury goods brands. Prada has been capitalizing on growing revenues in the Asia-Pacific region, which showed a 51 percent surge in sales in the first nine months of 2010.
In particular, China and related territories are the areas that are developing at the quickest pace for the company. Prada said 2010 revenues in China, Hong Kong and Macau rose 75 percent from 2009, to 389 million euros, or $532.3 million at current exchange. That represents nearly 20 percent of the group’s total turnover.
Earlier this month, Bertelli told WWD the group plans to open a significant number of stores in Asia over the next three years and expects to attain significant growth in the region. Prada currently has 14 stores in Mainland China, nine in Hong Kong and two in Macau, and this year plans to open nine stores in Mainland cities such as Harbin, Guangzhou, Changchun and Hangzhou. Another 11 stores are expected to open in 2012.
Prada has been focusing on developing its global retail network, with the aim of generating more than 70 percent of consolidated turnover from directly operated stores next year. The company had 310 stores at the end of October.
The Italian firm staged a major fashion-show event in Beijing earlier this month, and Miuccia Prada traveled there for the occasion. Also in January, the company said it was going to open design studios in Beijing and Paris. “Chinese customers are very attentive to fashion trends, to which they attribute great relevance, and they are also competent in terms of quality and design,” said Bertelli. “It is thus a qualified market, not only in terms of commercial development but also in the interpretation of trends.”
A Milan-based luxury goods analyst, who requested anonymity, said Hong Kong “is the natural alternative to Prada’s own country,” and attributed the firm’s choice mainly to a financial issue — i.e., price. “Asian markets are thirsty for luxury goods, and Prada could be valued up to 30 percent more, at about 7 billion euros [$9.5 billion] in Hong Kong, compared to about 5 billion euros [$6.8 billion] in Milan,” said the analyst.
He also said the IPO could take place as early as this spring, with Prada floating between 15 to 20 percent of the company. Downplaying any friction with the banks involved, which were said to be vying for a listing in Milan, he said: “It’s a win-win situation: Debts will be repaid, the banks will enjoy their IPO fees and everyone will be happy.”
Kate Calvert, a retail analyst at Seymour Pierce research in London, concurred, saying Prada “is more likely to get a higher multiple by listing in Hong Kong. And the luxury market is a growth market. It’s got to be Asia [where Prada plans for its future growth to come from] — China is the second-largest luxury goods market in the world. The wealth of emerging markets is a natural growth opportunity for any luxury brand.”
A study last year by Bain & Co. estimated the luxury market in Mainland China had grown 30 percent to $12.8 billion, and the region is expected to become the third-largest luxury market in five years. Greater China, including Hong Kong, already ranks number three, showing 23 percent growth in 2010.
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