Although the coronavirus pandemic severely impacted the IPO market in the first half of 2020, IPOs saw a resurgence in the second half of the year. It also seems that 2021 is off to a great start. Iconic British bootmaker Dr Martens has revealed plans to float on the London Stock Exchange in what is bound to be one of the first big IPOs of 2020.
Here’s everything you need to know about Dr Martens’ upcoming flotation and whether you can buy the company’s shares.
Dr Martens is a footwear and apparel company that has been in business for more than 60 years. Currently, it sells more than 11 million pairs of shoes and boots every year in more than 60 countries through its 130 high street shops and its online store. In the year ending March 2020, the company raked in more than £670 million in revenue.
Even during the pandemic, business was very good for Dr Martens. Sales went up 18% in the six months to September, mainly due to the company’s online operations.
In 2013, private equity group Permira bought Dr Martens for about £300 million. Permira plans to sell down its stake as part of the upcoming flotation.
When is the flotation happening?
Dr Martens has not announced an official date for the flotation, but it could happen very soon. The company has already hired Wall Street investment banks Goldman Sachs and Morgan Stanley to coordinate the flotation, according to Sky News.
Apparently, there will be no sale of new shares in the flotation.
Dr Martens expects to have a free float of 25% of its share capital to public investors but could list another 15% depending on demand. The total amount of money the company will seek to raise has not been disclosed.
Can I buy shares in Dr Martens’ flotation?
The opportunity to get in early and buy shares before a company’s flotation in the stock market can occasionally produce lucrative returns for investors.
For example, The Hut Group’s IPO last September, the largest in the UK since 2015, saw the company’s shares soar 30%. Last December’s Airbnb IPO saw its shares soar 120%. Those who got in early on these IPOs experienced a spectacular rise in the value of their investment.
Unfortunately, this opportunity is typically only available to a few select investors, most often institutional investors.
That doesn’t mean that it’s completely impossible to take part in a flotation as an individual investor. You can do it by:
- Looking for an online brokerage that receives stock. Before a flotation, some online brokerages might be allocated stock by an investment bank to sell to their members, so check with your broker.
- Developing a relationship with an investment bank. Some (such as those hired to coordinate IPOs) have access to stock before the flotation.
- Finding a mutual fund that invests in pre-flotation stock. There are some mutual funds that invest in pre-flotation stock. With some research, you could find one.
- Opening a share dealing account. A share dealing account can allow you to buy the stocks of a company on the first day they are floated. But you probably won’t get them at the offer price. The price will depend on the demand that day.
What are the risks?
Buying shares early, before they are floated, can be highly profitable, but it can also be risky.
For example, investors’ concern or pessimism may cause a company’s share value to fall after flotation instead of rise. A case in point is Uber, whose shares fell 7% below its initial public offering price when the shares were floated.
Alternatively, shares may rise in value because of pent up investor demand upon floating only to tank once the demand wanes.
That’s why, for most investors, it might be better to wait a few months before you buy the shares of a newly floated company like Dr Martens. Chances are that by then the hype will have died down, and the stock will have stabilised.
After all, here at the Motley Fool, we are advocates of long-term investing in great businesses rather than short term trading which can be both risky and unpredictable.
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