Despite the best attempts by bankers not to compare the two largest IPOs in Europe this year, there was no denying that German perfume business Douglas failed the smell test, while Swiss skincare group Galderma glowed.
Bottom-end pricing for Douglas and top-end for Galderma provided divergent narratives and, inevitably, contrasting outcomes on debut.
Douglas ended its first day of trading on Thursday at €23.06, an 11.3% drop. In total, 6.6m shares changed hands, representing 19,4% of the shares offered in the IPO, elevated but not heavy trading. On Friday afternoon, the shares were 16% below pricing at €21.84.
Galderma, significantly larger at SFr2bn (US$2.2bn) than the €890m total for Douglas, opened 15% above SFr53 pricing at SFr61 on Friday morning and was holding firm at SFr61.10 in the afternoon for a much more welcome debut.
While quite different businesses, both deals were almost entirely primary in order to pay down significant debt loads related to private equity ownership and are in the same beauty space, so the comparisons were there to be made.
Galderma’s pricing values the company at 16.9 times 2024 EV/Ebitda, a compelling near 25% discount to L’Oreal at 22 times. For Douglas, having a US peer in Ulta Beauty was not seen as an ideal benchmark, though it allows for a much wider discount when that trades at 12.41 times versus Douglas pricing at 6.1 times.
Outlier
A senior banker working on Douglas argued that the two deals are not comparable, particularly as Galderma has been an IPO candidate since 2021 giving investors a long time to get to know the company.
A head of syndicate involved on Galderma said that it is an outlier in terms of quality and must-have status – like Porsche though smaller – and less representative of what the market wants or can stomach in terms of floats. Douglas, on the other hand, is seen as good but not best of breed.
Another banker on Douglas said that Galderma had the advantage of "a huge pool of Swiss insensitive demand . . . Galderma will possibly be the largest and best in terms of blue-chip quality IPO this year, and that’s important as this is not an easy IPO market".
A banker at the bookrunner level on Galderma was more direct about the comparison and continued buyside sensitivity towards valuations.
"These IPOs had similar timetables, so we were able to get a sense of one versus the other and saw it as the first proper test for the European IPO market of whether you can successfully price and trade up an asset of mixed quality simply by bringing it cheap," he said. "Essentially, is it cheap enough? And I think Douglas shows we're not there yet where there is a price for everything. Pricing at the bottom suggests that there is no price discovery, it just means it was the lowest it could come at."
While Douglas priced at the bottom despite announcing coverage throughout the range on the second day of bookbuilding, Galderma was covered throughout immediately, had an accelerated "soft close" and the top five orders covered the entire SFr2bn IPO.
Galderma attracted a book of 400 lines, with the top 10 orders allocated 40% of the shares and a fifth of investors not given any stock. Long-only money took more than two-thirds of the deal, including a number of Swiss family offices and private banking money. There was significant interest from sector specialists and orders from the UK, US, Europe and Asia as well as Australia.
On Douglas, a book of around 130 lines included multiple anchor orders, not all seen before launch. Around 75% of the deal went to long-only and fundamental accounts, with the top 10 orders taking approximately 60% and again a fifth of the book not allocated.
Time to turn
Bankers on Douglas had predicted a soft start for the shares, with investors inevitably cautious due to the bottom of the range pricing. However, they noted in the past two difficult years several IPOs have delivered profits to those willing to wait weeks or months. A head of syndicate working on Douglas said the valuation is now really attractive and they haven't seen long-only investors selling so far. Management had also been fairly cautious on future performance, he said, so the company could beat expectations over the course of the year to trigger a recovery.
On Douglas, Citigroup and Goldman Sachs are joint process banks and joint global coordinators alongside Deutsche Bank, UBS and UniCredit/Kepler Cheuvreux. BNP Paribas, CVC Capital Markets and Jefferies are joint bookrunners and IMI-Intesa Sanpaolo, LBBW and RBI are co-lead managers.
On Galderma, Goldman Sachs, Morgan Stanley and UBS are joint global coordinators and joint bookrunners with Bank of America, BNP Paribas, Citigroup and Jefferies. Lazard is advising.