Is Birkenstock on the stock market?
Unraveling Birkenstock’s $8 Billion Valuation: A Deeper Dive
Birkenstock’s recent valuation of USD$8 billion has left many in the investment community scratching their heads. The renowned footwear company, with a legacy spanning over 250 years, suddenly seems to be in the same valuation ballpark as some of the tech giants. The immediate question that comes to mind is, “How did we land at this figure?”
The Historical Context
To comprehend the present, it’s essential to revisit the past. In 2021, during the pandemic’s peak, L Catterton, a U.S. private equity firm supported by Bernard Arnault (the world’s second-richest individual), acquired a majority stake in Birkenstock. The valuation then? A cool USD$4.35 billion. Remember, this was a period dominated by Quantitative Easing (QE) and a zero interest-rate policy (ZIRP), making everything appear more valuable than perhaps it was.
Fast forward two years, and we’re looking at a valuation that’s almost double. Investment banking heavyweights like Goldman Sachs, JPMorgan Chase & Co., and Morgan Stanley were behind this valuation. But what changed in these two years?
On the surface, Birkenstock has made strides:
- They’ve inaugurated a new factory in Germany with an investment close to USD$120 million.
- Their Last Twelve Months (LTM) sales have seen a growth of approximately 21%, jumping from USD$982 million to USD$1.19 billion based on revenue figures up to June 2023.
However, these achievements come with a pinch of salt. The company’s annualized net profit plummeted by about 20%, dropping from USD$182 million to USD$145 million.
A Quick Valuation Analysis
If we take a step back and evaluate Birkenstock’s future prospects, assuming a consistent 5% growth in its net cash flow indefinitely and taking the current NPAT of USD$145 million as a yearly cash flow reflection, a perpetuity valuation method (discounted at 10%) indicates a valuation close to USD$2.9 billion. This figure starkly contrasts the current $8 billion tag.
Digging Deeper: The Financial Multiples
With a valuation of USD$8 billion, Birkenstock is operating at a revenue multiple exceeding 6x and a P/E ratio over 50x. This might be reasonable for a burgeoning tech startup, but we’re talking about a brand that’s been making shoes for a quarter of a millennium.
Behind the Curtains: The Debt Dilemma
As of June 2023, Birkenstock’s debt loomed around $1.5 billion. With cash rates surging from 0.1% to above 5%, the brand is in dire need of liquidity to manage its financial obligations. The primary objective of the IPO? Debt reduction. And the seemingly inflated valuation? Likely a consequence of Arnault’s reluctance to dilute his share significantly. Given Arnault’s influential position in the banking world, it’s plausible he had a significant say in this valuation.
The Verdict
In conclusion, Birkenstock’s current valuation has raised eyebrows and fostered skepticism. While only time can truly validate or refute this valuation, moreover, it would be unsurprising to see a substantial shift in Birkenstock’s share price within the next year. However, we could see a huge drop in value. But why would it increase??
