New Look for the Stock Market

New Look on course for £1.7bn float

Fashion retailer New Look is drawing up plans for a £1.7bn-plus stock market float.

The company, which is backed by private equity firms Permira and Apax, could list on the stock market as early as January.

A formal "beauty parade" of investment banks is due to begin imminently, with advisers expected to be appointed within weeks.

New Look is one of a number of private equity-owned groups understood to be being lined up for flotation.

Following the financial turmoil of the past two years there is pent-up demand from private equity groups who are under pressure from investors to sell a number of their investments. According to a recent survey by Ernst & Young, private equity groups saw a slump of nearly 70pc in the number of major investments sold in 2008.

Acromas, which owns the AA and Saga, and Birds Eye Iglo are among the private equity-owned companies tipped to float next year. The size and success of the New Look float will be the first real test of investor appetite for these debt-laden businesses.

New Look, which was founded in 1969 by Tom Singh, was taken private by Permira and Apax in 2004 for £699m with Mr Singh retaining a 22pc stake.

New Look's private equity owners abandoned an auction of the company in 2007 after bidders failed to meet their near-£2bn asking price. The highest bidder – US buy-out giant TPG – tabled an offer of £1.75bn.

Having abandoned the sale, the business re-financed its borrowings, which currently stand at £1.1bn. The new borrowings include an onerous £359m "payment in kind" (PIK) note held by Goldman Sachs that accounts for 10-15pc of the debt facility. Interest payable on PIK notes is "rolled-up" and paid at the end of the loan term.

Earlier this year New Look said that earnings before interest, taxation, depreciation and amortisation (ebitda) increased by 10.2pc to £217.6m over the year to March 2009. Like-for-like sales were up 1.4pc, and total sales grew by 14.9pc to £1.33bn. It is expected that the ebitda figure for 2010 will reach between £230m and £235m.

But figures filed at Companies House reveal that in 2008 the company made a pre-tax loss of £1.8m over the period down from a profit of £5.7m the previous year. In its last year as a public company New Look made a pre-tax profit of £85.2m.

At the time the company said the credit crunch and a reduction in customers' disposable incomes had made a material impact.

During the last year, however, the company has managed to increase its margins by squeezing suppliers and pushing down sourcing costs as well as benefiting from currency movements.

Trading in the most recent six months is said to be "strong". On the back of this performance management is confident of a successful float.

The retail sector has been a favourite of the private equity industry, although a number of former private equity owned retailers – including Debenhams and Jessops – have struggled as public companies.

The company is expected to use audited half-year figures to September 2009 in any prospectus.

Over the summer, New Look took over five stores being disposed of by Borders UK, the book chain. The portfolio included Borders' flagship store on London's Oxford Street, opposite Topshop.

Management headed by Carl McPhail, chief executive, and Phil Wrigley, chairman, are also thought to have an equity stake in the business.

US private equity groups have already floated a number of investments. KKR raised $745m (£466m) when it floated Avago Technologies, while Emdeon, the health record manager backed by General Atlantic and Hellman & Friedman, was floated for $422m.

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