Nov 13, 20234 min read

Birkenstock’s IPO

By Agastya Jain, Edward Mazin, Lars Birkeland, Luca Cuffe (UCLA) & Samuel Smith, James Chan, Yanxi Liu, Amarthya Chandrappa (University of Warwick)

Photo: Jakob Owens (Unsplash)

Summary of IPO

Birkenstock is a German shoe company known for its comfortable cork sole sandals and shoe wear. Competitors and fashion retailers have imitated Birkenstock's iconic style, offering lower-priced alternatives. However, Birkenstock's commitment to sustainability, comfort, and durability has allowed it to maintain its market position and exceed sales expectations.

Birkenstock's IPO was priced at $46 per share, within its projected range of $44 to $49, raising $1.48 billion and valuing the company at approximately $8.64 billion. This valuation indicates a multiple of 6.9 times its annual sales and a price-to-earnings ratio of over 45, suggesting a premium compared to industry peers like Nike, Adidas, and others who trade between 1.0x to 3.0x sales with lower earnings multiples.

Despite these expectations, the market response was lukewarm, with shares opening at $41 and closing down at $40.20, a 12.6% decrease, reflecting skepticism about the ambitious valuation in light of the economic downturn and anticipated reductions in consumer spending.

With a presence in over 90 countries, Birkenstock's IPO proceeds are partly aimed at reducing debt, with the remainder benefiting its current owner, L Catterton. This move follows another L Catterton-backed IPO, Oddity Tech, which raised substantial funds.

Despite a drop in year-on-year profits due to increased costs and foreign exchange losses, Birkenstock's revenue grew by 21%. The ownership structure includes L Catterton, supported by LVMH and the Birkenstock family, holding a minority stake, indicating strong backing by prominent luxury and consumer-focused investors.

Company and IPO Profile

Sector: Consumer (Cyclical)
Industry: Footwear & Accessories
Ticker: BIRK
Listed Exchange: NYSE
Amount raised: $1.48bn
Offered price: $46/share
Opening price: $41/share
Shares offered: 10.8mn ordinary shares and 21.5mn existing shareholder shares
Over-allotment option: 30-day option for underwriters to purchase up to 4.8mn shares

Founded: 1774
Headquarters: London, United Kingdom
CEO: Oliver Reichert
Employees: 1,800
Deal implied market capitalization: $8.64bn
Market capitalization: $7.64bn
EV: $9.26bn
LTM EV/Revenue: 6.43x
LTM EV/EBITDA: 24.46x

Lead underwriters: Goldman Sachs Group, Morgan Stanley, and JPMorgan Chase
Joint Bookrunners: BofA Securities, Citigroup, Evercore ISI, Jefferies, UBS Investment Bank, BNP PARIBAS, Bernstein, and HSBC

Strategic Rationale

Birkenstock’s IPO was, according to CEO, Oliver Reichert, an attempt to “give the brand back to the people”. The move builds on the publicity the brand has received from its feature in the Barbie movie and marks a shift away from a family-owned brand to an independent business. This allows the brand to leverage the brand’s legacy to reach new customers and make comfortable fashion a global success. Birkenstock also plans to use the funds from the IPO to pay off debt, which as of June 30th stood at $1.5 billion.

Another key reason behind the family-owned company going public was L Catterton, a US private equity company that bought a majority stake in Birkenstock in 2021. Since the move, Birkenstock has seen strong growth, and an IPO is expected to continue this, allowing the company to raise capital and contribute to increased growth. The IPO will likely make L Catterton a strong multiple on its investment, with experts predicting a 2.33x multiple (Luisa Beltran).

Market Reaction

Build Up

In the build-up to Birkenstock’s IPO, analyst opinions were mixed. While companies like Arm, Cava, and Instacart blazed a trail in equity capital markets in 2023, post-IPO share prices slid significantly in many cases. The performance of IPOs in 2023 gave investors pause prior to Birkenstock’s offering.

Strong consumer fundamentals and an increasingly powerful brand image buoyed the outlook on Birkenstock in recent years and drove impressive valuations for the company. Many high-profile investment firms, including LVMH Chief Executive Bernard Arnault’s family office, Durable Capital Partners, and the Norwegian sovereign wealth fund, indicated interest in equity investments in Birkenstock surrounding the IPO. The Financial Times reported in September that the offering was heavily oversubscribed.

However, there was reason for pessimism. Choppy markets and uncertainty on the medium-term strength of the US consumer ultimately encouraged Birkenstock to price shares toward the middle of their possible valuation range.

Launch

The stock debuted at $46 per share, squarely within its anticipated range of $44 to $49.The offering raised about $1.48 billion on 32.2 million shares sold with a valuation of around $8.64 billion. The launch took a more conservative approach compared to other recent IPOs, which aimed for the higher end of their price ranges. This being said, the opening price was lower than expected, starting at $41 per share for the initial trade. The shares slid 12.6% after their debut, closing at $40.20 at the end of the first day of trading, leading to a market value of $7.55 billion.

Potential Risks and Downsides

Despite Birkenstock's strong branding and reputation for quality, its IPO has not been met with the enthusiasm one might have expected. By the end of the first trading day, share prices declined over 12% from the initial ~$46 midpoint price range. This dip suggests that the market may perceive the company as overvalued, prompting investors to approach with caution. The current macro landscape plays a role in this lukewarm reception, as the down market coupled with recession fears encouraged investors to look for other opportunities.

Looking ahead, there are several reasons why potential investors might be cautious about adding Birkenstock to their portfolios. While Birkenstock has succeeded in the quality sandal market, its premium pricing, with many products exceeding $120, could invite increased competition as competitors undercut pricing. Other footwear producers may attempt to replicate Birkenstock’s products at a lower price point, leading to market saturation and potentially eroding Birkenstock's market share. Moreover, Birkenstock's recent successes are highly attributable to pop culture trends. The unique, niche nature of their product offerings has set them apart in the footwear market. However, sustaining this popularity over the long term will be a challenge. Consumer preferences can be fickle, and what is fashionable today may not be tomorrow. If Birkenstock fails to continually innovate and stay ahead of changing trends, the brand's appeal could wane, impacting sales and investor confidence.

“Birkenstock will likely use some of the capital raised through the IPO to increase its market share in the United States. Its strong position there will allow it to pass on cost increases to its shoppers.” – Thomas Hayes, Chairman (Great Hill Capital, LLC)