(Bloomberg) — Birkenstock Holding Plc, the 249-year-old shoe brand, stumbled last week with a Wall Street debut that could derail the nascent recovery in IPOs.
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The maker of cork-soled sandals closed down 12.6% on Wednesday, its worst first-day result for a U.S. initial public offering valued at $1 billion or more in more than two years. Since AppLovin Corp.’s offering. In April 2021, with a day-one loss of 18.5%, there has been no worse debut of its kind.
Poor market timing appears to have worked against the Neustadt-based company’s conservative pricing strategy and its reliance on anchor investors. It also overshadowed the recent sales surge of the Hollywood blockbuster Barbie, which saw Margot Robbie swap her heels for a bright pink pair.
The IPO was “definitely not the debut that Birkenstock was hoping for,” said Nicholas Smith, senior research analyst at Renaissance Capital. He added that the current market is more sophisticated and risk-averse, especially in the consumer sector.
When it comes to an IPO, sometimes timing can be everything. Birkenstock’s investor roadshow was marked by a possible government shutdown in the US, holidays in Germany and the US, delayed listings in Europe and an outbreak of war in Israel.
Those factors, as well as disappointing earnings from Birkenstock’s indirect backer LVMH just hours before the new stock began trading in New York, weighed on the company’s performance. LVMH and the family that controls it are partners of Birkenstock owner L. Catterton.
Bernard Arnault’s conglomerate, which owns brands such as Louis Vuitton and Christian Dior, reported a 9% rise in third-quarter sales, below the 11.9% expected by analysts. It said consumers were spending less after the post-pandemic boom years, particularly in Europe. The results weighed on other luxury stocks.
The story goes on
That cast a shadow over how some investors viewed Birkenstock after the books closed at midday on Tuesday, one of the people said, and may have weighed on the company’s trading debut. With markets already shaken by the Middle East, some larger clients are reconsidering their interest in the sector, they said.
A representative for Birkenstock declined to comment.
IPOs canceled
Volatility in global stock markets in early October had already begun to shake confidence ahead of Birkenstock’s IPO, after Triton previously postponed its planned share sale for military gear maker Renk AG. A few hours before Birkenstock began trading, French software company Planisware postponed its IPO on Euronext Paris, citing difficult market conditions.
Birkenstock’s order book was filled at the top more than eight times on Tuesday, said the people, who spoke on condition of anonymity to discuss confidential information. At Tuesday’s pricing meeting at the Plaza Hotel on New York’s Fifth Avenue, the company and its private equity owner L Catterton settled on a price of $46, just below the midpoint of the marketed range of $44 to $49 aiming to ensure a first day “pop,” people said. The offering raised $1.48 billion.
Even at $46, the price may have been too high compared to competitors. At that price, the company was valued at 4.9 times forward price-to-sales, while its footwear peer trades at just two times, according to Bloomberg Intelligence analyst Abigail Gilmartin.
Like the other participants in the fall IPO class, Birkenstock had lined up anchor investors as part of a strategy to stabilize supply by securing demand.
But anchor investors haven’t made recent IPOs a sure win. Instacart also tried this strategy and is still trading 15% below its IPO price. That could be because these anchor investors don’t necessarily need to hold on to their shares, says Josef Schuster, founder and CEO of IPOX Schuster.
“We have also seen that some of the cornerstone investments are not subject to lock-up requirements, so allocation does not reduce liquidity by default,” Schuster said.
There is also some debate about Birkenstock’s preference to allocate 90% of its IPO shares to long-only investors, which is more than usual. The company and L. Catterton insisted from the start, even before the roadshow began, that they wanted a portfolio full of strong long-only investors and were not interested in “short-term” money, i.e. hedge funds. They held very few meetings with hedge funds or alternative asset managers, the people said.
This decision could ultimately lead to downward pressure on the stock as long-only companies’ demand has been met through the IPO process and hence they have not purchased shares in the open market, they added.
Rubric, tower
Shares continued to fall on Thursday and again on Friday, extending the decline from the IPO price to nearly 21%. This gave the company a market value of around $6.8 billion.
The first foolishness is already causing other companies that had sought short-term listings to rethink their timelines.
Among those slowing down on their IPO plans are Microsoft Corp.’s IPO, according to people familiar with the matter. backed cloud and data security startup Rubrik Inc. and car-sharing company Turo Inc. Rubrik and Turo’s IPO schedules have not yet been determined and could change.
Representatives for Rubrik and Turo did not respond to requests for comment.
– With support from Amy Or.
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