Prada: To IPO or not to IPO: That is the question, again
Prada is an Italian high-end luxury brand specializing in luxury clothes, handbags and accessories. Now the company has to tackle to major problems. Prada currently requires a significant amount of capital both to re-finance debt that is maturing in the next six to twelve months and to finance its intended growth into the Asian (especially Chinese) markets. However, they are still hesitating which financing alternatives should they choose. In the downturn of the world economy, Asia, especially China, has become the new boost area where Prada eagers to make substantial investment to realize its expansion plan.
Although the press has been suggesting that Prada will do an initial public offering, the company has tried this several times in the past with no success, mainly because of bad timing (9/11, the SARS outbreak, and the ongoing global financial crisis and European sovereign debt crisis). The board has approached Guido Santini of the investment bank Grupo Capo Milano to come up with a number of credible alternatives and a strategy for raising the needed capital.
The current and short-medium term outlook for the global fashion industry is that of continued growth, albeit at a slower rate than on the recent past. Nevertheless, the forecast of 10-11% growth for Asia, with the 15-20% growth in China in particular, single out the market as a key area of focus for the fashion industry, which explains prada’s eagerness to expand their Asian business, whose revenues are primarily from direct retail. This is reflected in Prada’s rapid revenue growth from retail, and flagging wholesale revenues.
In the very beginning, a macro analysis tries to bring up an overview on the worldwide financing environment and on the luxury goods industry. After that, an analysis on the Prada Spa current financial situation is made, and then, with reference to the Prada expansion plan, we quantitates a detailed capital budget. Up to now, the total financing gap is determined. The third part comes to the three different financing alternatives, respectively IPO, strategic partner and debt. For each of them, the related cost, timing, amount of cash are listed throughout some simulation and impacts on the Prada...