Authentic Brands, known for their retail brands Forever 21 and Juicy Couture, is all set to be the newest entrant in the share trading space. The brand also owns Sports Illustrated along with the brand name and rights of legendary stars like Elvis Presley and Marilyn Monroe. They have now decided to go public and are releasing an Initial Public Offering (IPO) of $100 million in their Class A stocks. The company, registered as ‘AUTH’ on the New York Stock Exchange, is also offering Class B and C stocks. Overall, the IPO is expected to earn much more than that.
The US stock markets
There are 3 main stock markets operating in the US for share trading – the American Stock Exchange (AMEX), the New York Stock Exchange (NYSE), and the National Association of Securities Dealers (NASDAQ). In 2008, however, the NYSE acquired AMEX. Smaller companies that generally choose AMEX can continue doing so, but AMEX is now treated as a part of the NYSE.
All the public companies must be registered under one of these stock exchanges to be eligible to issue public offerings for share trading. The NYSE is by far the world’s largest equity-based stock exchange. As of June 2021, the market capitalization share of the NYSE is a little above USD $25.30 trillion, while the NASDAQ is just above USD $22.11 trillion.
The NYSE lists stocks of some of the highest-valued companies such as Alibaba Group Holding, Berkshire Hathaway, and JP Morgan Chase. NASDAQ can stand alongside the NYSE as the second biggest player in the share trading industry due to top brands like Microsoft and Apple.
The Authentic Brands offering
The company has filed to raise US $100 million from Class A stocks under the NYSE, but the final amount is likely to be far higher. The valuation of the company when the IPO is released is expected to be around US $10 billion. They are also offering Class B and C stocks which will have different voting rights.
As per the company’s prospectus, Class A is common stock and will carry one vote, as will the Class C stock. However, the Class B stocks will have greater voting rights and will only be sold to Jamie Salter, the CEO of the company, and his key associates. It also includes one of Jamie Salter’s sons, Corey Salter, who is the COO of the company.
The deal is a syndicated effort of a total of 11 banks. Major bankers such as JP Morgan and Goldman Sachs are the lead underwriters of the deal. The company intends to use the proceeds of the IPO for regular corporate affairs along with repayment of debt.
The Authentic Brands growth trend
The company was founded in 2010 by CEO Jamie Salter. It earns most of its revenue from the Intellectual Property (IP) and Name, Image, and Likeness (NIL) rights. According to the CEO, the company doesn’t manufacture anything, rather they are a licensing business and focus purely on brand identity and marketing. They have acquired over 30 businesses and have over 700 partners across the globe. Their most recent acquisition was the athletic brand Reebok.
The company’s total revenue in 2019 rounded up to USD $480.4 million, while for the year 2020, it came up to USD $488.9 million. Out of this, the revenue from licensing for FY 2019 was USD $469.3 million, and USD $471.3 million for FY 2020. While the company incurred losses on investments of USD $93.9 million in 2019, they gained USD $0.7 million in 2020. For a detailed breakdown of the company’s financial performance by the end of the financial year 2021, check out this article.
While the company has been equity-owned since its inception, it is now going public to pay down its debt. It’s a common practice for private equity-owned companies to issue public offerings to repay debt and expand their business.
Consider these things before the IPO
The company has seen enormous growth since its inception. Between the years 2016 and 2020, the company’s revenue saw a Compound Annual Growth Rate (CAGR) of a whopping 31%. Their profits have only seen year-on-year growth and may see more of it. A lot of the company’s brands were facing bankruptcy when Authentic Brands acquired them, such as Forever 21 and Barney’s New York. The company is expecting its acquisitions to go up from USD $261.6 million in 2020 to USD $520 million in 2021.
These five things are worth considering before the IPO of the company is released:
- The company will continue acquiring brands.
- The company has accumulated a lot of goodwill and other intangible assets over the years of acquisitions. It could result in write-downs and lead to an increase in losses.
- SPARC Group Holdings LLC, the operator of Nautica, Forever 21, Brooks Brothers, Lucky Brand, and Aeropostale, is the biggest licensee of Authentic Brands. The LLC is owned jointly with the mall REIT of the Simon Property Group.
- The company has gone to court over publicity rights for Marilyn Monroe.
- The company plans to expand Sports Illustrated into ticket sales and sports betting.