The brand’s IPO relies on Elvis not leaving the building

LONDON, July 7 (Reuters Breakingviews) – What do Marilyn Monroe, Elvis Presley and Brooks Brothers have in common? They’re all in the graveyard, for one thing. But for the owner of the rights to their trademarks, they are very much alive. Authentic Brands is gearing up for its stock market debut with a valuation of $ 10 billion. While his business of picking up struggling retailers is flourishing, the danger is that the aforementioned Elvis leaves the building.

Authentic Brands was founded in 2010 and makes its money reclaiming recently disgraced retail brands like Nine West and Forever 21, as well as the rights of famous icons like Monroe, Presley and even the former star of the basket Shaquille O ‘Neal. He then signed lucrative licensing deals with manufacturers who wanted to slap the image of this celebrity or make clothes under the brand of this retailer. It also owns around 1,500 stores through a joint venture with Simon Property (SPG.N) called SPARC.

Despite the slightly gruesome way it caught pandemic retail road fatalities, Authentic Brands doesn’t have expensive overheads like warehouses, inventory, and retail staff. Last year, when the pandemic gutted Main Street, its net income nearly tripled to $ 211 million. It made about 83% of its nearly $ 490 million revenue in 2020 from royalties and its Adjusted EBITDA margin is 76%.

Fresh funds will allow the brand owner to jump into the next round of zombie retailers. Over the past year, retail stalwarts like Neiman Marcus, JC Penney, J. Crew and Arcadia, owner of Topshop, have crumbled into administration. The pandemic has exacerbated trends like online shopping, which means more things will go away. The cash round will also help repay some of Authentic Brands’ $ 1.4 billion net debt, roughly 4 times its 2020 EBITDA.

A valuation of $ 10 billion would mean Authentic Brands is trading at an EBITDA multiple of 32 times, according to Endeavor (EDR.N). Yet, as the company acknowledges in its initial public offering documents, brands like Juicy Couture and Nautica could fall out of favor. Genuine brands can also see their income plummet if one of the living celebrities they market is canceled or if one of the deceased is reassessed. Second, the zombie status might not only apply to Authentic Brands targets.

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NEWS CONTEXT

– Authentic Brands filed an initial public offering in the United States on July 6.

– In a regulatory filing, Authentic Brands listed asset manager BlackRock, US private equity firm General Atlantic and mall owner Simon Property among its shareholders.

– Authentic Brands, which owns the Brooks Brothers and Forever 21 brands among others, is considering listing on the New York Stock Exchange.

– The company’s 2020 net profit jumped to around $ 211 million from $ 72.5 million a year earlier, while its revenue rose nearly 2% to $ 488.9 million.

– The company was aiming for a valuation of around $ 10 billion when it went public, CNBC reported in May, citing someone familiar with the matter.

– The Nautica brand owner also said in the filing that he intends to purchase more brands, with opportunities in lifestyle, entertainment and other new areas.

– BofA Securities, JPMorgan and Goldman Sachs are among the main underwriters of the IPO.

Editing by George Hay and Karen Kwok