Birkenstock IPO: Why the sandal manufacturer was caught on the wrong foot

Birkenstock IPO: Why the sandal manufacturer was caught on the wrong foot

Birkenstock, a traditional sandal manufacturer, has suffered a serious setback in its IPO in New York. The share fell almost 13 percent below the issue price on the first day of trading. The downward trend initially continued on the second trading day. Typically, companies aim for a price point that ensures positive price development at the start of trading. However, this strategy went wrong at Birkenstock. The issue price was set at $46, in the middle of the set price range of $44 to $49. But even this price was too high for investors.

The question arises as to how this failure could have occurred. Did Birkenstock and its main shareholder L Catterton inflate the price or underestimate demand? The market environment for IPOs in the fashion sector is currently not optimal due to economic concerns and tighter consumer budgets. However, chip designer Arm's share price rose by a fifth when it went public four weeks ago. Unlike many unprofitable companies whose stock prices skyrocket when they go public, Birkenstock has a solid business record and profits.

However, Birkenstock is not an isolated case. In May 2019, for example, the ride-hailing company Uber suffered a similar disappointment when its shares debuted on the stock market at seven percent below the issue price. However, the price later recovered. The shares of the delivery service Instacart, which started at a premium a few weeks ago, are now 20 percent below the issue price.

The placement of Birkenstock shares raised around $1.5 billion. About two thirds of this go to the main shareholder L Catterton, who is connected to the luxury group LVMH and its boss Bernard Arnault. Birkenstock intends to use its share of the proceeds to repay debt. L Catterton will remain in control of the company even after the IPO.

Birkenstock's origins date back to 1774. The company has developed from an eco-shoe image to a fashion accessory and cooperates with renowned brands such as Dior and Manolo Blahnik. In the first half of the current financial year, Birkenstock increased sales by 18.7 percent to around 644.2 million euros, but profits fell due to unfavorable exchange rates.

The impact of the failed IPO on the market and the financial industry can be significant. On the one hand, investor confidence in fashion company IPOs could be weakened, especially if investors reject prices that are too high. This may result in other fashion companies having difficulty raising capital through IPOs due to the difficult market environment. Furthermore, the Birkenstock case shows that even solid and profitable companies with a long-standing business model can be affected by a poor stock market start. This highlights the risks and uncertainties associated with IPOs.

Source: According to a report from www.schwarzwaelder-bote.de