Beauty retailer Douglas’s shares drop 9% in underwhelming Frankfurt IPO

Shares in German beauty retailer Douglas fell as much as 9 per cent in their Frankfurt debut on Thursday, as investors gave a lukewarm welcome to the country’s biggest initial public offering since 2022.

The listing of the retailer, which operates 1,800 stores across Europe, had been closely watched by investment bankers and investors who hoped it could mark the start of a rebound in Europe’s weak market for IPOs. The fall came as the wider German market rose — the MDAX index of 50 mid-cap stocks was up 0.7 per cent on Thursday afternoon.

A banker who worked on the IPO said investor sentiment had been hit by the profit warning by the French owner of Gucci on Tuesday evening, which fuelled a “widespread risk aversion”.

Private equity-owned Douglas, which raised €850mn, had priced its 32.7mn new shares at €26, at the bottom of the price range. The first market price on Thursday was €25.50 and by early afternoon the shares were trading at €23.28.

The banker said he was “personally disappointed” by the share’s performance, adding that the “order book was stable” as the stock was oversubscribed several times. The implications for other potential listings were limited as “each IPO case is different and the market is highly selective,” he said.

Douglas raised €850mn in the IPO and received an equity injection of €300mn from existing shareholders, private equity group CVC and its founding family Kreke, resulting in a market capitalisation of about €2.8bn. The Düsseldorf-based company previously said that it would use the IPO’s proceeds to bring down its debt.

“Douglas has been a weak IPO — you don’t see it very often that a stock trades below the IPO price at the opening,” said Christian Reindl, a fund manager at Union Investment who bought shares in the IPO. He said that Douglas was a sound company operating in an “interesting market” with good growth rates and stable margins. “We are confident that Douglas will deliver on its promises and that the share price will reflect this over time,” he said.

Reindl criticised the structure of the listing, arguing that the €300mn in equity which existing investors had injected had created a “stock overhang that is weighing on the share price”. “From a technical point of view, the IPO was poorly done.” 

Including its remaining debt, the company will be worth close to €5bn. In the run-up to the IPO, Douglas had hoped to achieve a higher valuation, according to people familiar with the internal discussions.

CVC acquired Douglas eight years ago from private equity rival Advent and oversaw a choppy period. During the Covid-19 pandemic, the retailer faced significant financial stress and CVC injected additional equity to support a last-minute refinancing.

Thomas Schweppe, founder of Frankfurt-based investment adviser 7 Square, said that the stock’s poor performance reflected scepticism over “a challenged company that is listed in a difficult market environment”, adding that investors were sceptical given Douglas’s debt, recent performance and high exposure to physical retail. “In some ways, the fact that it is possible to list such a company at all suggests that the IPO market currently is rather strong,” he said.