AIBC Forex: Birkenstock’s debut fails to revive IPO market

Birkenstock has gone public only to see its shares plummet by 13 percent.

There was much hype and publicity prior to the IPO of this German shoe company with nearly two and a half centuries of history. The disappointing outcome raises questions about the company’s shares, their potential value and the broader implications for the IPO market.

Reasons for caution with Birkenstock shares

Before hastily diving into the seemingly attractive opportunity presented by Birkenstock shares, a seasoned investor who spoke to AIBC News and wished to remain anonymous said that there are significant factors to consider before investing in Birkenstock shares. He pointed out that Birkenstock’s ambitious valuation pre-IPO did not reflect the company’s business model and this made investors skeptical. He added that CEO Oliver Reichert lacks the experience of running a US listed company and this has created a lot of doubt amongst investors about his ability to navigate the US financial markets successfully.

It is also fair to point out that the IPO market is disappointing on the whole and although the recent decline is worrying, there is still potential for IPOs to thrive provided that the offer is exceptional and captures the interest of investors.  Companies need to convince the market with promising and realistic growth prospects.

Analysis of an ambitious valuation

Birkenstock’s recent IPO, which resulted in a 13 percent share price decline, has raised questions about the company’s future and the broader state of the IPO market.

Birkenstock opted for a high IPO price, aligning it with premium brands like Nike, but investors disagreed with this strategy. This outcome is unusual for well-known brands like Birkenstock, as companies typically aim to avoid such declines on their first day of trading.

Stretched consumer budgets pose a challenge to Birkenstock’s growth potential, particularly in Asia and the U.S. The valuation target may also seem excessive given the current uncertainty of the stock market.

While Birkenstock has shown double-digit growth and improved margins, investors believe it did not merit a premium valuation. Its IPO valuation exceeded that of similar companies like Allbirds, Skechers, Crocs and Steve Madden. Some analysts remain optimistic however, citing the brand’s popularity among younger consumers and celebrities.

Birkenstock’s IPO performance highlights the challenges facing the IPO market. To regain strength, the market should attract companies with outstanding growth potential. Despite the recent setbacks, there is still hope for the IPO market, provided companies can capture the interest of investors with compelling offerings.

In conclusion, analysts this week are advising investors to exercise caution before considering Birkenstock shares. The IPO market, while recovering from a dull 2022, remains selective in its choice of companies with high growth potential.

It would be wise to wait and assess Birkenstock’s performance in the coming months.

Background

Birkenstock, with a heritage dating back to 1774, has transformed from a traditional sandal maker to a global fashion icon. As it proceeded to public trading, its historic legacy is set to evolve further. Birkenstock stands out by maintaining around 95 percent of its product assembly in Germany, in contrast to the common practice of relocating production to lower labour cost regions. Over the decades, Birkenstock sandals have seen various cycles of popularity, from their emergence during the counterculture movement of the 60s and 70s to a resurgence in the 90s and a comeback in the fashion world in the 2010s. Today, their reputation for comfort and timeless design keeps them a staple in many wardrobes.

The highly anticipated IPO, aimed to achieve a valuation surpassing US $9 billion, after a dry spell of new IPO listings since the beginning of 2022. To set the stage for its IPO, Birkenstock appointed Alexandre Arnault, the son of LVMH Chairman Bernard Arnault, to its board of directors. The company’s strategy was to offer shares in the price range of US$ 44 to US$ 49 per share, with potential proceeds of up to US$ 1.6 billion, shared between the company and its private equity owner, L Catterton. Through L Catterton, the majority stakeholder in Birkenstock, the company is indirectly connected to the luxury fashion house LVMH.

The presence of significant anchor investors, including Financière Agache, the family holding company of LVMH’s CEO, as well as the Norwegian sovereign wealth fund and Durable Capital Partners, Birkenstock’s IPO debut was expected to dazzle.

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