Witchery and Mimco group appoints float adviser – but will investors be tempted?

Iconic women’s fashion brand Witchery, which also owns the Mimco accessories group, has taken another step towards a sharemarket listing, with the group’s private equity owners Gresham Private Equity appointing Macquarie Group and JP Morgan as joint lead float managers.

Gresham is running a dual-track sales process for the Witchery and Mimco group, which has more than 270 stores.

Gresham will continue to look for a trade buyer – Myer, Oroton and Solomon Lew have been mentioned as potential buyers – at the same time as preparing for a float.

According to the Australian Financial Review, the company would seek to float in the last quarter of calendar 2011, with an information memorandum set to be released next week.

The report puts the group’s combined revenue for 2010-11 at about $275 million, with earnings before interest, tax, depreciation and amortisation tipped to be around $45 million.

While the float of two big fashion names would draw plenty of headlines, it remains to be seen whether investors will be tempted to back an IPO.

The last two retailers to float, Myer and Kathmandu, have both performed poorly since listing on the ASX. Both were previously owned by private equity firms.

Tom Elliott, head of MM&E Capital, says he wouldn’t be buying into a retailer at the moment, but he wouldn’t necessarily be put off by the fact the business is owned by private equity.

While he acknowledges investors look at private equity-backed floats with “suspicious eyes” he says that “to say that they are all the same just because of Myer and Kathmandu is nonsense.”

“Typically private equity is seen as stripping out all the costs and making all the gains, loading the company up with debt and then flogging it,” Elliott says.

“But these things always need to be looked at on an individual basis. How is the float priced? Is there still growth? Have all the costs already been stripped out?”

“Some private equity floats do well, some don’t. Obviously the market will pay, as it always does, an appropriate price-to-earnings multiple.”

Elliott says investors will particularly want to examine Witchery’s growth prospects after it’s sold.

However, he would be very wary about anything in the retail sector given current conditions.

“Trying to flog a retail business right now would be tough, not because it’s private equity but because retail is so tough.”