Australian online retailer Adore Beauty may have launched the nation’s largest initial public offer (IPO) this year at a whopping $269.5 million, but it is not just funds that the company hopes to raise.
The 20-year old pureplay giant is also aiming to significantly raise its brand awareness (to more than 80%) and drive online penetration to such heights that it effectively owns the beauty space in Australia and New Zealand.
Key to achieving that will be establishing itself as the “pre-eminent online destination” for a broad selection of premium beauty, wellness and personal care products for the 18.5 million visitors and 590,000 active customers of its website.
Its growth plan includes a mobile app by year end, as well as the development of private label products, an enhanced customer loyalty program and in the long-term, a possible expansion into new overseas markets.
Adore Beauty is asking investors to take up 39.9 million shares on offer at $6.75 a share to raise $269.5 million (including $40 million in new shares).
If successful, the IPO will value the company at $614.8 million and give it a market value on listing of $635.3 million.
The prospectus quotes the company’s enterprise value for the 2020 calendar year as 3.9 times its forecast sales of $158.2 million and an eye-watering 181 times its forecast net profit of $3.5 million (or 454 times its trailing net profit in 2019).
Adore Beauty co-founder Kate Morris and business partner James Height have committed to selling 40% of their shares into the offer, giving them each a return of $45.9 million and leaving them with a combined 21.6% interest in the company.
Private equity firm Quadrant Growth – which acquired 60% equity in Adore Beauty last year – will also sell 40% of its shares, reducing its stake to 32.5% and netting a gain of $137.2 million.
All three shareholders have agreed to not offload any more shares until Adore’s full-year accounts are released in mid-2021.
Morgan Stanley Securities Australia and UBS AG Australia have been appointed joint lead managers for the IPO.
Adore Beauty aims to hit the ASX boards this month using the ticker ‘ABY’.
Adore’s ambitions are lofty but not altogether unattainable for the firm, which first entered the e-commerce space from the back of a Melbourne garage in 2000, and last financial year chalked up $121 million in revenue and a tidy $2.5 million net profit.
As the public face of the company, Ms Morris is confident that past strategies will serve the company well as its forges ahead with its capital raising.
“We have always grown very carefully and sustainably and profitably, so the business doesn’t need to raise a huge amount of capital to fund its growth plans,” she said.
“This IPO is a really important next step for Adore to be able to continue its growth journey and be able to take [advantage of] all the growth opportunities.”
Like these opportunities, the target market is huge.
“Our aim is to reach the millions of people who have not yet heard of Adore Beauty and build trust and connection with these individuals to drive traffic and conversion growth,” Ms Morris said.
“We believe there is significant opportunity to increase [our] current levels of brand awareness from 47% to [more than] 80%.”
Adore Beauty seeks to provide customers with a superior online shopping experience using a broad and diverse portfolio of over 230 brands and 11,000 products.
The range includes high-end department store and professional salon brands, as well as cult, niche and masstige (offering prestige to the masses) brands with purchases focusing on a seamless transaction experience driven by artificial intelligence-led personalisation and recommendations.
Adore’s technology is classed as a “data-enriched integrated content, marketing and e-commerce retail platform” which partners with beauty and personal care brands to introduce customers to a large range of products for a variety of needs and preferences.
The company’s Melbourne-based warehouse is able to support up to 15,120 orders per day, representing significant storage capacity with current utilisation rates at approximately 31%.
It has a strong track record of on-boarding new brands that match its identity based on strategic alignment and suitability, and whether the brand would be desired by Adore’s customers.
According to research firm Frost & Sullivan, the Australian beauty and personal care market (online and offline) generated sales of approximately $10.9 billion in the 2019 calendar year, and is expected to grow to $12.9 billion by 2024.
The firm estimated the New Zealand market size to be NZ$1.7 billion (A$1.58 billion) in 2019, reaching NZ$2 billion (A$1.86 billion) by 2024.
Online market penetration rate in Australia has been estimated at 7.3%, which lags international markets such as the United States and the United Kingdom, with estimated levels of 15.4% and 12.7%, respectively.
Ms Morris believes Adore’s online penetration will continue to increase, and that COVID-19 may accelerate the speed of uptake going forward.