IPOs: Waiting for a Tech Unicorn

Just over a decade ago, investors with a penchant for luxury goods were reeling over the slew of IPOs that rocked the markets – family-run businesses like Salvatore Ferragamo and Prada among them, following in the steps of Bulgari and Tod’s.
That all changed after the financial crisis. Today, trade woes, weak EU banks, Italy’s bad debt crisis, and political malaise continue to toss cold water on any hope of renewing the IPO fever that once riled Milan’s FTSE Mib and Paris’ CAC Indexes.
For analysts, the real problem isn’t the banks and it’s not the looming threat of yet another recession or the trade crisis, it’s the dearth of tech and online companies that have what it takes to survive the headwinds ahead.
“I guess one reason is that quite a number of these IPOs are at the intersection of technology and the internet, where Europe is two or three steps behind the USA. European IPOs are still ‘old economy’ in luxury goods on this side of the ocean… like Watches of Switzerland, for example,” said Luca Solca, Senior Research Analyst, Luxury Goods at Bernstein.
By comparison, in the US, markets are still reeling from digital commerce IPOs that soared on their market debuts in 2018 and earlier this year.
Secondhand luxury retailer the RealReal, which debuted on Nasdaq this summer, raised $300 million and surged 50% on opening day. London-based Farfetch, which recently listed on the New York Stock Exchange, hit a valuation of about $6.2 billion. On a side note, Farfetch is facing multiple class-action lawsuits alleging it had misled investors during its IPO. Levi Strauss & Co., Kontoor Brands, and Revolve Group all joined the public markets over the past year. JCrew’s savvy Madewell unit is also the next market hopeful.

According to financial market platform Dealogic, 2018 was, without doubt, a tough year for Europe. “A range of macroeconomic uncertainties affected both investors’ and corporates’ sentiment. EMEA IPO levels dropped 97% to $475 million in proceeds and 65% to 22 IPOs in activity compared to the same period last year.”

Macroeconomic factors will continue to impact IPOs across the board over the next year, said Dealogic in a note published earlier this year.

In Europe, there are some small glimmers of hope. Vestiaire Collective, a Paris-based social commerce platform, recently completed a 40 million euro round of financing led by Bpifrance and Chief Executive Max Bittner, as the company focuses on enhancing its tech features, as well as the Asia and Middle Eastern expansions. There has been no real talk of an IPO, at this stage. In Italy, the situation is lacklustre at best. IPOs on the horizon are smaller in terms of scale. Accessible luxury brand Elisabetta Franchi is shooting to list in early 2020 on the AIM segment for small caps of the Italian Stock Exchange. Missoni, whose Vice President Michele Norsa was a crucial figure in the listings of the Valentino Fashion Group and Salvatore Ferragamo, told WWD earlier this year, the company might list in 2023. Missoni, which booked 150 million euros in revenues last year, sold 41.2 percent stake to FSI Midmarket Growth Equity Fund for 70 million euros in 2018 to fuel its expansion.
As the gap between the worlds of science, tech, and fashion continues to narrow, some smaller players might emerge onto the international scene over the next decade, investors say.
“I think that creating a successful company is just hard. Maybe today it is easier to start one, but this creates much more competition on the market, so only the strongest survive,” said Fashion Technology Accelerator CEO Giusy Cannone, who added the next companies to make an impact are those invested in artificial intelligence, smart information, GEO price monitoring, merchandising optimization, customer behavior analysis, and those invested in data supporting creative processes. “It all boils down to  market entry. Some innovations come to market too early and the market is not necessarily ready to accept them yet. Look at the rental market for instance: in the US, Rent the Runaway has become a unicorn; in Europe the rental market is still very very small with no dominant players yet,” Cannone said.
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