This article is for the Professionals
Sign up to Inside Retail Professional now for only $5+GST for your first three months.
That's an 85% discount plus you’ll get FREE access to all Masterclasses during Retail Week. 5 retail industry leaders like you’ve never seen them before.Already a professional? Log in
It is also understood that Wesfarmers might dust off its 2017 plans to divest Officeworks through a public listing, while Naomi Milgrom’s Sussan Group is for sale at the right price and the Spotlight Group would be a prime offering if its owners decided to divest the company now valued at more than $3 billion.
Other potential IPO plays could also run to the discount department store chains, Wesfarmers’ Kmart and Target or Woolworths’ Big W, while Metcash has previously considered a public listing of Mitre 10.
Timing is everything
Wary of the Covid-19 economic aftershocks, 2021 looms as a year of consolidation in the retail industry with retailers keen to fortify their businesses against any further disruption.
Despite encouraging Christmas and New Year sales bolstered by pent-up consumer demand and government stimulus packages, retail insolvencies are expected in the months ahead along with further contraction of store networks.
Private equity firms and rivals will be on the lookout for bargain priced acquisitions that could be rejuvenated by restructuring and an injection of capital.
Debt reduction, recruitment of new capital to fund restructuring and future growth, including potential acquisitions, and value extraction by current owners are the key factors underpinning IPO plans.
Private equity acquisitions and trade deals may override IPO intentions as happened with the JB Hi-Fi’s takeover of The Good Guys in 2016, but that will depend on the stability of the stock market which prospectively would be expected to deliver higher value.
Four of the IPO candidates have already courted institutional investors for support for a public listing but deferred their plans, largely because of stock market volatility and, for three in 2020, uncertainty about the broader economic outlook after Covid-19.
In 2020, Greenlit Brands deferred the Fantastic Furniture float for which it was seeking $959 million and Woolworths postponed its multi-billion dollar float of its liquor business, Endeavour Group.
Chemist Warehouse is expected to realise at least $5 billion if it proceeds with an IPO that was deferred last August but expected to be revisited in 2021.
A safe bet
Chemist Warehouse, Endeavour Group and Officeworks, which had its IPO shelved by Wesfarmers in 2017, are the pick of the potential floats as each is a strong market leading enterprise.
Woolworths’ divestment of Endeavour Group still confounds some shareholders as it would seem to be a perfect fit with the company’s core supermarkets business with annual sales of around $10 billion and around $1 billion in earnings before interest and tax.
Woolworths’ shareholders would prefer to see the lumbering Big W divested, but the company is attempting to turn the discount department store chain around to improve its prospects of a reasonable return in a trade sale or IPO.
Wesfarmers had expected to realise $1.5 billion for Officeworks but could not convince investors on that valuation in a 2017 market wary of retail stocks after Myer and Dick Smith tanked.
Wesfarmers subsequently jettisoned its Coles food and liquor business through a successful IPO and is known to have considered divesting both Kmart and Target before merging the two discount department store chains in 2016.
While there is speculation that Wesfarmers could contemplate an IPO play for the barnstorming Bunnings hardware business, a revisit of the Officeworks sale or offloading the discount stores would seem more likely.
Chemist Warehouse has annual sales of more than $4 billion and a market share of close to a quarter of the relatively stable retail pharmacy market.
A complex ownership structure to satisfy government regulatory restrictions on pharmacy ownership required restructuring before Chemist Warehouse could proceed with an IPO.
The Chemist Warehouse IPO is arguably the least susceptible to market volatility but the float could be impacted by any government health policy shifts following the pandemic.
A tough sell
Allegro Funds could face a tough sell on the $400 million Best & Less IPO. Best & Less is locked into a very competitive apparel and homewares category, which includes having its former stablemate Harris Scarfe now as a competitor, following its acquisition by Spotlight Group.
Similarly, Fantastic Furniture trades in a competitive retail category, which had institutional investors mulling over a lower valuation than Greenlit Brands wanted, prompting a December deferment of the planned IPO.
The national economy is certainly awash with stimulus cash that the government wants to be directed into business investment as well as to cushion economic sectors, such as retail, particularly hard hit by the pandemic.
However, a wait-and-see approach is likely in the early months of this year ahead of a run of retail stocks clamouring to list on the Australian Securities Exchange.