IPO News: All you need to know about Authentic Brands’ stock market debut

Authentic Brands Group Inc., the owner of popular apparel brands like Forever 21 and Marilyn Monroe, is all set for its Wall Street debut, joining a slew of companies that went public this year. Since the majority of its brands fall under the consumer discretionary category, Authentic’s top-line was hit by the virus-induced disruption and store closures initially, but it was soon offset by strong licensing revenues from newly acquired businesses.

$10-Bln Valuation

According to a statement filed with the Securities and Exchange Commission, the company is preparing to list its shares on the New York Stock Exchange under the ticker symbol AUTH. It expects to raise around $100 million from the offering — the date for which will be announced later. The management is yet to reveal the number of shares being offered and the price range. Post-IPO, the valuation is expected to reach about $10 billion.  The lead book-runners are Bank of America Securities and J.P. Morgan.

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Read management/analysts’ comments on quarterly reports

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The New York-based firm, whose main business involves developing and marketing lifestyle brands, has scooped up many struggling brands like Brooks Brothers and Nine West — which were on the brink of bankruptcy at one point in time – and revived them. Besides Merlyn Monroe, it also owns the brand names and rights to yesteryear celebrities Elvis Presley and Muhammad Ali.

In Expansion Mode

The brand licensing giant has broadened its portfolio consistently since 2010 when it was founded by Jamie Salter, and currently owns around 30 apparel brands that include celebrity wear and sportswear. Salter has served as the CEO since then. Its major stakeholders include BlackRock Inc. (BLK: NYSE), General Atlantic LLC, and Leonard Green & Partners LP.

Continuing the expansion spree, Authentic acquired Washington-based clothing store chain Eddie Bauer a few weeks ago, together with SPARC that co-owns around 1,500 stores in a joint venture with the company.

Risks

On the flip side, the mass shift to online shopping might not bode well for some of the brands managed by the company, due to their brick-and-mortar-focused business model. Also, any potential impact on cash flow would undermine its ability to deal with the $1.8-billion debt, which is comprised of two term loans. Going by the aggressive growth strategy — endorsed by the management claiming it is “just getting started” –debt will grow further going forward.

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Being a brand manager with little control over store operations, inventory, and supply chains makes the business more vulnerable to macroeconomic headwinds than the manufacturers and retailers of those brands. That means the reputation and financial condition of its partners and the quality of products can influence the company’s operations at any time. However, the unique business model allows it to reduce overhead costs and avoid investing in high-value assets.

Financial Data

In fiscal 2020, total revenues increased 2% annually to $488.9 million. Reflecting the positive top-line performance and moderation in expenses, net profit nearly tripled to $211 million. Authentic recorded around $10 billion of gross merchandise value from sales of branded products, through its 700-odd operating partners spread across the globe.