The owners of Europe’s largest online retailer Zalando are preparing for an initial public offering after the company reported strong sales growth for 2013.

European Web Giant Zolando Talks to IPO Banks

EYK HENNING

Updated Feb. 14, 2014 7:43 p.m. ET

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The owners of Europe’s largest online retailer Zalando are preparing for an initial public offering after the company reported strong sales growth for 2013.

Zalando’s owners, including Swedish investment firm AB Kinnevik, have held talks with investment banks to potentially advise on the transaction, according to two people familiar with the matter. They said Goldman SachsGS -0.21% Morgan Stanley MS -0.74% andJ.P. Morgan Chase JPM +0.21% & Co. have good prospects getting a mandate.

Kinnevik assessed Zalando’s fair value at €3.9 billion ($5.34 billion) as of the end of December, according to its 2013 financial statement, compared with €3.7 billion at the end of September.

With the trend to online shopping flourishing in Europe, Zalando Chief Executive Rubin Ritter was noncommittal on IPO plans Friday.

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Zalando reported a 50% rise in 2013 sales, but it remains unprofitable. Agence France-Presse/Getty Images

“An IPO could be an interesting option in the future, but no decision has been made,” Mr. Ritter said in an interview.

A public offering in 2014 would come six years after the founding of the fast-growing company. Berlin-based Zalando focuses on clothes and shoes. Over the past year it added a handful of new country shops for a total of 14 in Europe. On Friday, the company reported a 50% rise in 2013 sales to €1.8 billion, though it remains unprofitable. Last year, it had a negative margin of slightly below 7% on earnings before interest and tax, translating into a loss of around €120 million. A year earlier, Zalando posted a negative EBIT margin of 7.2%.

Mr. Ritter said he was satisfied with the 2013 performance, although a mild winter and investments in new distribution centers hampered profitability.

“We want to grow further but are clearly focused on improving margins by making advertising and our distribution centers in [the German cities of] Erfurt and Mönchengladbach more efficient,” he said.

The retailer was profitable for the first time in 2012 in its core markets of Germany, Switzerland and Austria. Overall, Zalando is unlikely to be profitable before next year, according to estimates from UBS AG UBSN.VX -0.27% , yet most investment banks value the online retailer substantially above €5 billion, given its rapid growth.

UBS has estimated Zalando’s value at roughly €5.78 billion, while Citi analysts peg it closer to €8.5 billion, including debt.

UBS forecasts revenue to grow to €2.8 billion this year and €3.8 billion in 2015, when it expects Zalando to reach profitability.

Kinnevik, Zalando’s largest shareholder, holds about 37%, followed by the investment vehicle of the Samwer brothers, German Internet investors, with 18%. A third shareholder is Holch Povlsen, founder and chief executive of the Danish fashion brand Bestseller. Further shareholders include investment firm DST Global and the venture capital arms of German publisher Holtzbrinck and food retailer Tengelmann.

It is unclear whether all of its shareholders would sell shares in an IPO or retain their holding.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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