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New Look Group Plc, the U.K. women’s budget fashion chain that was taken private in 2004, today launched its long-awaited initial public offering (IPO) to raise £650 million. The firm says it wants to cut its debts and free it up to invest in opening new stores in Britain and abroad, as well as expanding in menswear and childrenswear and on the Internet. But the real driver is that private-equity owners Permira Advisers LLP and Apax Partners Worldwide LLP want to sell shares and return cash to their backers at a high point in stock market terms. Permira and Apax formed a group with New Look founder Tom Singh that paid £669 million for the retailer in 2004. An attempt to sell the company in 2007 failed after offers fell below the price demanded by the owners. The buyout firms had sought at least £1.8 billion from bidders, two people with knowledge of the process said at the time. New Look is returning to the market after more than doubling its selling space and plans to continue expanding in the U.K. and internationally. “It is a much bigger business than it was five years ago, but it is also a much better and broader-based business than it used to be and management have a good growth story to tell,” said Nick Bubb, an analyst at Arden Partners in London. Chief Executive Carl McPhail told reporters he was cautious about the consumer outlook, but was confident New Look's track record of growing in the recession would stand it in good stead. New Look wants to reduce its debt to £450 million from just over £1 billion, McPhail said in an interview. He declined to say how much the company may be worth. The retailer aims to add 1.5 million square feet in the U.K. over the next five years, adding to the 3.7 million square feet its stores currently occupy, McPhail said. Abroad, New Look plans to open 70,000 square feet for the brand and 45,000 square feet for its franchise operation in the coming year, he said. New Look, which trades from over 1,000 stores in mainly Britain and also France, Belgium and other overseas markets, reported a 5.9% rise in sales at UK shops open at least a year in the 14 weeks to January 2, outperforming rivals such as Marks & Spencer and Next. Earnings before interest, tax, depreciation and amortization rose 10% to £217.6 million in the year to March 28. New Look in particular faces a challenge to overcome the disillusion created by the IPO of department stores group Debenhams, which was floated by private equity owners in 2006 laden with debt and saw its shares plunge over the following 2-1/2 years. "No interest whatsoever in this IPO," said one head of UK equities at a large fund firm on condition of anonymity. "Fantastic company, but coming in at totally the wrong price for the debt structure. "Why on earth would you want to invest in a company at a valuation that they are proposing to sell at when it is still left with vast amounts of debt, when you can go into the quoted market and buy companies like Next and Home Retail that have no debt, proven management that you know and trust and valuations that are much much cheaper," he said. But a pick-up in investment appetite from private equity firms has given owners of retail businesses an alternative exit. Last week, private equity firm KKR agreed to buy pet goods retailer Pets at Home for what one source close to the matter was a higher-than-expected £955 million, and Matalan and sofa retailer DFS are also in talks over possible private equity bids, Credit Suisse, Deutsche Bank and JP Morgan Cazenove are joint sponsors and joint bookrunners of the share sale, while Lazard is joint sponsor. Barclays, Lloyds, and RBS Hoare Govett are co-lead managers, while Investec and Singer are co-managers. Looking for commercial property agents, find lettings and investment property in the UK? Visit http://www.ukbusinessproperty.co.uk
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