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Shares in German cosmetics retailer Douglas fell as much as 9 percent in their debut in Frankfurt on Thursday as investors gave a lukewarm welcome to the country's biggest initial public offering since 2022.
The IPO of the retailer, which operates 1,800 stores across Europe, was closely watched by investment bankers and investors who hoped it could mark the start of a recovery in Europe's weak IPO market. The decline came as the broader German market rose – the MDAX index of 50 mid-cap stocks rose 0.7 percent on Thursday afternoon.
A banker involved in the IPO said investor sentiment had been hit by Gucci's French owner's profit warning on Tuesday evening, leading to “widespread risk aversion”.
The private equity firm Douglas, which raised 850 million euros, had priced its 32.7 million new shares at 26 euros, at the lower end of the price range. The first stock market price on Thursday was 25.50 euros, and in the early afternoon the share was quoted at 23.28 euros.
The banker said he was “personally disappointed” with the stock's performance, adding that the “order book was stable” as the stock was several times oversubscribed. The impact on other potential listings would be limited because “every IPO case is different and the market is very selective,” he said.
Douglas raised 850 million euros in its IPO and received a capital injection of 300 million euros from existing shareholders, the private equity group CVC and its founding Kreke family, resulting in a market capitalization of around 2.8 billion euros. The Düsseldorf-based company had previously stated that it would use the proceeds from the IPO to reduce debt.
“Douglas was a weak IPO – you don't often see a stock trading below the IPO price at the opening,” said Christian Reindl, a fund manager at Union Investment, who bought shares in the IPO. He said Douglas was a solid company operating in an “interesting market” with good growth rates and stable margins. “We are confident that Douglas will deliver on its promises and that the share price will reflect this over time,” he said.
Reindl criticized the structure of the stock exchange listing and argued that the 300 million euros in equity that existing investors had contributed had led to a “share overhang that was putting a strain on the share price”. “From a technical perspective, the IPO was poorly done.”
Including the remaining debts, the company will be worth almost 5 billion euros. Douglas had hoped to achieve a higher valuation in the run-up to the IPO, people familiar with the internal discussions say.
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CVC acquired Douglas from private equity rival Advent eight years ago and endured a turbulent time. During the Covid-19 pandemic, the retailer experienced significant financial difficulties and CVC introduced additional equity to enable a last-minute refinancing.
Thomas Schweppe, founder of Frankfurt-based investment adviser 7 Square, said the stock's poor performance reflected skepticism about “a challenged company listed in a difficult market environment,” adding that given Douglas' debt, investors are skeptical about physical retail given the recent performance and high engagement. “In some ways, the fact that it is even possible to take a company like this public suggests that the IPO market is pretty strong right now,” he said.
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