IPO of Federer’s sneakers sets a frenetic pace
LONDON, Sept. 16 (Reuters Breakingviews) – On (ONON.N) has exited IPO blocks at a breakneck pace. Shares of the Roger Federer-backed Swiss sneaker company jumped 50% on its New York debut on Wednesday, putting it at a valuation of $ 11 billion. With many rivals on its heels and potential political headwinds in China, the price may be that of a sprint, not a marathon.
The tennis maestro bought an 11-year-old stake in the company two years ago. Since then, its record has been stellar, fueled primarily by the pandemic running boom. Sales are up 60% per year, and the pace may have picked up even more this year – revenues in North America, On’s largest market, have doubled from a year ago during the first six months.
That said, a valuation of $ 11 billion, equivalent to 13 times On’s expected sales of around $ 800 million this year, looks like an overshoot. Sports giant Nike (NKE.N), currently worth $ 249 billion, is trading at 5 times this year’s sales. Meanwhile, $ 54 billion Lululemon (LULU.O), maker of trendy yoga pants, is on less than 9 times. If On were to be valued according to Lululemon’s earnings multiple for next year, it would have to double its revenue in the next 12 months, according to calculations by Breakingviews.
Its recent performances show that it is possible. But there is always the risk of getting into trouble. The tube-shaped sponges in the soles of his $ 200 shoes are estimated to give him an edge. But the high-tech sneaker market is a crowded area. Besides Nike, Asics (7936.T), Adidas (ADSGn.DE) and start-ups like Brooks Running, backed by Warren Buffett’s Berkshire Hathaway (BRKa.N), are investing heavily in their own faster models.
A manufacturing base almost exclusively in Vietnam, currently in the grip of a severe wave of Covid-19, is another risk. And there are question marks about its prospects in China, where 1.3 billion people are increasingly catching the fitness virus. The People’s Republic’s income was only 5.5 million Swiss francs in 2020, but is expected to triple this year. However, Beijing’s lukewarm attitude towards foreign brands, as opposed to local champions like Li Ning (2331.HK), could be a drag in the longer term.
Not that Federer is too worried. Assuming he keeps his stock, the Swiss served another ace.
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– Shares of On began trading at $ 35.40 in New York City on September 15, valuing the Swiss-based sneaker maker at around $ 11.35 billion. On September 14, the company valued its bid at $ 24 per share, above its stated range of $ 20 to $ 22.
– The 11-year-old company raised net proceeds of approximately $ 746 million from the offer. Existing investors sold shares worth $ 135 million.
– Tennis legend Roger Federer became an investor and ambassador for On in 2019. Swiss newspaper Handelszeitung said in February that the investment amounted to some 50 million Swiss francs ($ 54 million). Five founders of On will hold majority voting shares, which together represent 59.4% of total voting rights.
– Goldman Sachs, JPMorgan and Morgan Stanley acted as principal bookkeepers.
Editing by Ed Cropley and Katrina Hamlin
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