Samsonite IPO

Samsonite kicks off Hong Kong IPO of up to $1.5 billion

The private equity-owned luggage maker aims to beat Prada to become the second international consumer product brand to list in Hong Kong after L’Occitane.
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Travellers line up for an old-for-new suitcase swap arranged by Samsonite in Korea a few years back (AFP)</div>
<div style="text-align:left;"> Travellers line up for an old-for-new suitcase swap arranged by Samsonite in Korea a few years back (AFP)</div>

Less than two years after completing a major financial restructuring to avert bankruptcy, Samsonite International is looking to become the second international consumer product brand to go public in Hong Kong. The luggage specialist yesterday kicked off the institutional marketing for an initial public offering of up to HK$11.75 billion ($1.5 billion) and aims to start trading on June 16.

The deal comes at a time when consumer spending in Asia, and China in particular, is becoming increasingly important for producers of consumer goods and a growing number of international companies are looking to get closer to their customers by listing in the region as well. The depth and liquidity of the Hong Kong stock market and its active retail investor base is supporting this trend and, while L’Occitane is the only non-Asian consumer goods company to list in Hong Kong so far, the pipeline of potential deals is already quite long.

Next in line after Samsonite, is fashion icon Prada, which is currently pre-marketing for a Hong Kong IPO of between $2 billion and $2.5 billion and is expected to start a formal roadshow next Monday.

Samsonite, which is primarily known for it hard-side suitcases but also operates cheaper luggage brands like American Tourister and AT, and makes casual bags for travelling, doesn’t have the same image of luxury as Prada, but in terms of brand recognition it isn’t far behind. The company is six times larger than its nearest direct competitor in terms of sales and its suitcases can be found at 37,000 points of sale in more than 100 countries. It derived one-third of its sales and more than 40% of its adjusted Ebitda from Asia last year.

And, in case people were not already familiar with the name, Samsonite has launched a huge advertising campaign in Hong Kong that has seen a large number of the city’s most prominent billboards adorned with its products during the past couple of weeks. It is hard to go anywhere in the city these days without finding oneself pondering whether it might be time to buy a new suitcase.

Whether such tactics are enough to draw retail investors into the deal remains to be seen, although the hefty retail demand for the IPO of Milan Station a couple of weeks ago showed there is definitely appetite for consumer retail stocks. The small-cap retailer of unused and second-hand luxury branded hand bags, which raised a modest $35 million from its IPO, attracted orders for more than 2,100 times the number of shares earmarked for retail investors, and soared 66% on its first day of trading.

Institutional investors may be harder to convince though. Several of this year’s major Asian IPOs are still trading below issue price and investors are getting more and more selective about where they put their money. Or as one banker put it: “There are no slam dunk deals at the moment.”

Samsonite seems to have taken this on board and its IPO comes at a discount — at the bottom of the range, quite a substantial discount — to key local brands and retailers like Belle, Hengdeli and Trinity.

However, this may be needed as the company, although 101-years-old this year, still has a short track record in its new restructured form. Also, the company’s two major shareholders, private equity firm CVC Capital Partners and Royal Bank of Scotland, will both be selling about 40% of their holdings, which means the IPO is more about cashing out than about raising capital for future growth.

That said, Samsonite is an asset-light operator that last year outsourced 94% of its manufacturing to third parties, primarily in China and the rest of Asia, while about 80% of its sales came from wholesale channels such as department stores, luggage specialty stores, mass merchants like hypermarkets or discount stores, and online retailers. This keeps its cost base low and allows it to maintain good margins, while also requiring less capital expenditure.

However, the company is spending quite a lot on advertising and marketing to support its brands — as noted in Hong Kong these past couple of weeks. In 2010, it spent $102.5 million on advertising, which was up 132% from the previous year and equal to 8.4% of sales. It also accounted for close to 30% of last year’s net profit of approximately $355 million.

The company is offering 671.2 million shares, of which 82% are secondary shares and 18% new, which will leave 47.7% of its share capital in the hands of public investors at the time of listing. The deal, which will be split 90-10 between institutional and retail investors at the outset, also comes with a standard 15% greenshoe.

The shares are offered at a price between HK$13.50 and HK$17.50, which puts the deal size between $1.2 billion and $1.5 billion and will result in a market capitalisation of at least $2.4 billion at the time of listing. The final price will be determined after the US market closes on June 9.

The price range values the company at a 2011 price-to-earnings multiple of 17 to 22 times, based on the consensus earnings forecasts from the joint bookrunners. This compares with an average P/E ratio of about 24 times for its key comparables, according to a source.

Among the closest comps, shoe manufacturer and retailer Belle International is currently trading at a 2011 P/E multiple of 26.7 times; Trinity, a high-end/luxury menswear retailer controlled by the brothers behind Hong Kong-listed supply-chain manager and sourcing agent Li & Fung, is trading at 26.2 times; watch retailer Hengdeli is fetching 23.3 times this year’s earnings; and domestic fashion retailer Ports Design is quoted at 16.3 times.

French cosmetics and skin care brand L’Occitane International, which was the first international consumer products company to list in Hong Kong, is trading at 22.4 times its projected earnings for the fiscal year ending in March 2012. The stock has risen 277% since its trading debut in May last year.

In the preliminary prospectus, Samsonite noted its strong international brand presence, scale, robust investment in advertising and product innovation, scalable distribution and sourcing ability, and market-leading, high-quality products as key reasons to invest. The company is also benefitting from the growing number of Asian people that go travelling every year, for business or on holiday.

“We expect that our Asian business will be an increasingly important driver in the growth of our top line sales and profitability as a rapidly expanding middle class spends an increasing amount on travel and travel-related products,” the company said in the preliminary prospectus.

In 2010, its sales increased by 18.1% to $1.2 billion, while its adjusted Ebitda (excludes income from the licensing agreements with Lacoste and Timberland that were discontinued at the end of 2010) improved by 241% to $191.9 million. Asia accounted for 41.7% of adjusted Ebitda last year and was also its most profitable region with an adjusted Ebitda margin of 19.8% last year. Overall, the company is forecasting a net profit of “not less than $64.2 million” this year.

In the first quarter this year, Samsonite’s sales in Asia grew by 57%, helped by more than 50% growth of the overall luggage market in China and India. By comparison, luggage sales to Europe and the US are growing at around 20% per year. According to the source, Samsonite has 700 to 800 points of sales in China, which suggests a lot of growth potential when compared with Belle’s 3,000 sales points.

Samsonite has had several different owners since it was founded in 1910, and in July 2007 it was bought by Luxembourg-based CVC Capital Partners for $1.7 billion. RBS provided financing for the deal and, when Samsonite had financial difficulties in 2009, the UK bank ended up swapping some of its debt into a minority equity stake. At present CVC owns about 54.3% of the company, while RBS holds a 29.9% stake. The rest of the company is owned by CEO Tim Parker (6.5%) and by the rest of the management (4%).

Samsonite is being brought to market by HSBC, Goldman Sachs, Morgan Stanley, Royal Bank of Scotland and UBS.

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