Farfetch growth to push IPO into 2019
- Listing could take place on US or UK stock exchanges
- Comps point to average EV/sales multiples of 7.83x-13.4x
UK-headquartered luxury fashion ecommerce platform Farfetch is angling for a 2019 IPO, a source close to the situation said.
As the company is still in a phase of strong growth, a listing is not on the cards this year, the source said.
Sky News reported last June that the company was eyeing a USD 5bn listing, which could take place in the US or UK.
A New York listing is being considered due to US investors’ healthier appetite for ecommerce platforms and business models similar to Farfetch, compared to Europe, a sector banker following the situation said.
The abundance of technology investors in the US makes New York the logical choice, a fund manager agreed. However, to really succeed with a US IPO, the company should be both profitable and of “decent size”, they added.
For FY16, Farfetch reported 74% year-on-year revenue growth to GBP 151.3m, with losses increasing 18% to GBP 34m. Gross merchandising value was up 81% at GBP 547m.
Farfetch’s preparation to become a listed company has been ongoing for a few years, an institutional investor commented, noting the 2015 hire of CFO Jordan Elliot, formerly ASOS [LON:ASC] Finance Director.
The group is backed by London-based private equity Vitruvian Partners, Chinese ecommerce platform JD.com[NASDAQ:JD], Singapore-based Temasek, China-based IDG Capital, and France-headquartered Eurazeo[EPA:RF]. In its latest financing round in June, JD.com invested USD 397m in the business. This resulted JD.com becoming one of its largest shareholders, a Farfetch spokesperson told this news service, declining to elaborate.
Farfetch and JD.com declined to comment. Vitruvian Partners, Temasek, IDG Capital and Eurazeo did not return requests for comments.
Comps universe – delivery platforms, marketplaces
The best EV multiple for online marketplaces is EV/revenue rather than EV/EBITDA, Alessandro Casartelli, Director at technology-focused boutique investment bank GP Bullhound told this news service.
“These businesses tend to invest aggressively to expand quickly and take market share, therefore profits are suppressed and can skew other multiples,” he said. “Once these marketplaces have matured and scaled, however, the business model will ultimately deliver high margins of EBITDA at around 20 to 30 per cent.”
The comps universe for Farfetch is relatively wide, ranging from delivery platforms to online classifieds and fashion retailers, a second sector banker said. These include Autotrader [LON:AUTO], Zillow [NASDAQ:ZG], Carsales [ASX:CAR], Asos, and Zalando [ETR:ZAL], this banker said.
The first sector banker agreed that Asos is among comparables, while the source close highlighted YOOX Net-A-Porter [BIT:YNAP] as a peer.
However, as the company still has plenty of room for growth, and investors are likely to focus on this rather than looking too closely at the bottom line, it would make sense to benchmark against high-growth online delivery platforms such as Delivery Hero [ETR:DHER], and Takeaway.com [AMS:TKWY], the same banker added.
These peers trade in a wide EV/sales multiple range of 1.9x for YOOX Net-A-Porter to 13.6x for Takeaway.com, for an average of 7.83x, according to Dealreporter analytics.
However, benchmarking against Delivery Hero and Takeaway.com only, which trade at very close EV/salesmultiples of 13.2x and 13.6x respectively, would yield a much higher average of 13.4x.
Some luxury fashion brands could also provide some valuation guidance but these more mature players tend to be looked at on an EV/EBITDA basis, which makes direct comparison difficult, the second sector banker said.
High-end fashion brands LVMH [EPA:MC], Hermes [EPA:RMS], Christian Dior [EPA:CDI], Kering [EPA:KER], and Compagnie Financière Richemont [VTX:CFR] trade in an EV/sales multiple range of 1.8x for Dior to 8.1x for Hermes, yielding an average of 6.8x, according to Dealreporter analytics.