Iconic bootmaker Dr Martens plans IPO

Classic British boot brand Dr Martens has unveiled plans to float on the London Stock Exchange.

The company, whose boots and shoes were made famous in the punk era and are enjoying a resurgence in popularity, plans an eventual free float of 25% of its share capital, with potential to list another 15%, depending on demand.

Dr Martens is owned by IngreLux, a Luxembourg-based company owned by funds advised by private equity firm Permira, which would reduce its stake as part of the offering. The company sells more than 11m pairs of shoes and boots every year in more than 60 countries

It generated revenue of £672m in the year to March 2020, with earnings before interest, tax, depreciation and amortisation of £184m.

“The announcement of our intention to float reflects the great achievements of the Dr Martens team and brand over the past seven years,” said chief executive Kenny Wilson. “Even more important is the significant global growth potential for Dr Martens in the future.”

“We have invested massively to ensure that we deliver the best digital and store experiences to connect with our wearers, and through this we are driving our long-term, sustainable growth,” Wilson added.

Recent figures show rising sales, despite Covid-related restrictions on its stores, as it shifts more sales direct to consumers.

QUESTIONS FOR INVESTORS?

The company's iconic air-cushioned sole was developed by Munich-based Dr Klaus Maertens and Dr Herbert Funck. Originally sold as a work boot, it was popular among the skinhead youth movement of the 1960s and became synonymous with the punk movement in the 1970s.

Goldman Sachs and Morgan Stanley are IPO co-ordinators, with Barclays, HSBC, Merrill Lynch and RBC acting as joint bookrunners if the offer proceeds. Lazard & Co has been appointed as financial adviser.

AJ Bell investment director Russ Mould said the IPO decision was "interesting timing, coming so soon after the Brexit trade deal and revival in the UK market with the FTSE 100 having enjoyed its best start ever to a calendar year. If ever there was a good time to market a well-known British name to investors, it is now".

However, despite the company's "classic British brand" status Mould warned that "a few warning signs flash immediately".

"The first is widespread consumer criticism over a decline in product quality. Once known as being reliable, long-lasting footwear, Dr Martens’ products have more recently been accused of having sub-standard stitching and soles which peel off after short use," he said.

“Could it be that the business has suffered under private equity ownership? Many investors are sceptical about backing companies that are being sold by private equity, for fear they might have suffered from underinvestment and subjected to a “quantity over quality” approach for production.

Mould said some critics had suggested the problems started when production shifted to Asia nearly 20 years ago which could be "a key reason behind the apparent deterioration in quality".

“Its boots may look good, but the real test for investors to part with their money is whether the shares can go the distance. While the earning growth figures may impress, it doesn’t look good when there are already holes elsewhere in the investment case.”

Dr Martens said Permira had invested in the business during the last seven years, adding that it had de-risked its supply chain by diversifying both the supplier and factory base, outside of China, as well as "establishing a detailed bottom-up supply chain cost savings programme".

"The group has been able to continually scale production capacity to meet the volume growth, whilst at the same time reducing China production from 46% of pairs in full-year 2019 to 32% in 2020 ," it said.