Mergermarket.com
Mulberry valuation – back down to earth
Buyout possibilities at handbag designer Mulberry [LON:MUL] are likely to come into sharper focus following a 30% stock price slump yesterday (20 August).
Mulberry was considered a potential target through 2013 and 2014 following a report of interest from fashion house Hermes [EPA:RMS]. At the time, its high valuation appeared to limit the potential either for a bid from strategics like Hermes or 56% shareholder Challice Ltd, a vehicle of Singapore billionaires Christina Ong and Ong Beng Seng.
Reported interest from Hermes came at a time when Mulberry was trading close to its all-time high. Reports then cited a possible takeout price of around GBP 25 per share, some 525% higher than where Mulberry trades today.
Today, Mulberry’s looks like a straightforward tuck-in acquisition for any of the fashion industry’s major players. Trading at 1.3x sales after yesterday’s sell-off, it is comfortably cheaper than UK-listed rivals and precedent transactions. That argument couldn’t be made with as much certainty when it was trading at 3.5x back in 2013.
UK luxury comp Burberry [LON:BRBY] trades at 3.4x sales and 15.1x EBITDA while Jimmy Choo was bought by Michael Kors [NYSE:KORS] in 2017 for 2.9x sales and 17.7x EBITDA. At Jimmy Choo’s EV/sales takeover multiple Mulberry would be worth more than GBP 8 per share.
Profitability metrics are less relevant for Mulberry than sales-based multiples, the Flash would argue. Mulberry is facing short-term profit headwinds and said yesterday it would take a GBP 3m charge related to the collapse of retailer House of Fraser.
Potential buyers are more likely to be interested in Mulberry’s 63% gross margin than its 4% operating margin – operating cost savings with a brand as small as Mulberry should be significant.
Shareholders are likely to have an important role to play. Challice Limited, an investment vehicle of Christina Ong and Ong Beng Seng, a wealthy Singapore-based family, owns 56% of the share capital. Melissa Ong, the couple’s daughter, is a director of Mulberry. A take-private from Challice looks perhaps the most likely buyout scenario but it’s equally possible they might be keen to seek an exit following a long and successful investment time frame which extends back to the year 2000.
Banque Havilland, a private bank, owns a further 24% and Tybourne Capital Management, a Hong Kong-based hedge fund, owns about 11%. Tybourne first disclosed its position in 2014 when Mulberry traded at around GBP 6.60 per share. Havilland bought its shares from fashion financier Kevin Stanford in 2009 when the stock traded below GBP 1.00.