The Hut Group’s Planned $1.2 Billion IPO Breaks London Lull

British e-commerce company The Hut Group Ltd. plans to sell 920 million pounds ($1.2 billion) of new shares in an initial public offering, breathing life into an IPO market that has seen little activity this year.

Holders of existing shares also will reduce their stakes, the company said in a statement Thursday, without detailing the size of this portion of the offering. If the IPO proceeds, there will be a free float of at least 20% and an equity value of 4.5 billion pounds before any new capital is raised. At 920 million pounds, the listing would be the largest by a British company in London since online rail-ticketing company Trainline Plc debuted in June 2019.

The offering includes a feature that’s unusual in the U.K.: The company is awarding its co-founder, Chief Executive Matthew Moulding, a so-called golden or founder share that will give him power to veto any hostile takeover attempt for three years. That wrinkle means The Hut Group doesn’t meet the corporate governance standards for a premium listing on the London Stock Exchange, and thus is ineligible for inclusion in benchmark indexes such as the FTSE 100, according to the LSE.

“We very much needed that founder share,” Moulding said in an interview, adding that company had received takeover interest from numerous parties. The news of the IPO also piqued such interest, he said, adding the company was focused on expanding into a “major, global player” rather than selling.

Moulding said he was keen to keep the Manchester-based business headquartered and listed in the U.K., although founders of high-growth businesses often have headed to the U.S. in search of enhanced voting rights. Moulding said he doesn’t plan to sell any stock in the IPO and after the listing will own a 25.1% stake in the company, which operates websites including myprotein.com and Coggles.com that sell beauty and nutrition products.

Because newly listed companies that employ multiclass voting share structures are excluded from many stock indexes, The Hut Group will miss out on flows from passive managers tracking those benchmarks.

Still, the founding share hasn’t given investors any cause for concern in early-look meetings the company has held, Moulding said, adding that the IPO was “hugely covered with incredibly strong interest levels.”

In another twist, shares in the listing will be sold at a fixed price. Most European IPOs are marketed with an initial price range for as long as two weeks, with bookrunners typically pricing the shares based on investor feedback a day before the listing.

IPO activity has been hampered by the economic effect of the coronavirus pandemic and volatile markets. Only seven companies have managed to go public in London this year, a 65% drop on the same period in 2019 and the lowest since the depths of the financial crisis in 2009, according to data compiled by Bloomberg.

The IPO market is slowly picking up pace, but the only companies that have been able to list are those that benefited from, or proved resilient to, the impact of virus-induced lockdowns.

The Hut Group’s listing comes amid a boom in e-commerce fueled by Covid-19 restrictions. The trend has been especially pronounced in the U.K., an early leader in online sales that’s seen downtown shopping districts decimated by the shift.

Accelerating Growth

The company has been one of the country’s biggest digital success stories, drawing a visit from Prime Minister Boris Johnson during the general election campaign in December. Starting out as a white-label provider of e-commerce services in 2004, it now works with global brand owners such as Nestle SA and Procter & Gamble Co.

The Hut Group said its growth has accelerated this year, with revenue climbing almost 36% to 676 million pounds in the first half, as the pandemic curbed sales in brick-and-mortar stores.

The company has supplemented its business-to-business operations with its own beauty and sports-nutrition brands, including Lookfantastic. THG, as it’s known, employs more than 7,000 people, double the number four years ago.

The Hut Group is adding about 2,000 employees a year and the pandemic hasn’t disrupted its plans, Moulding said. Most of its office staff are working from home, with employees going into the workplace twice a week, he said, adding that social-distancing measures have been in place in the company’s global distribution centers for much of the year.

“Migration to online shopping, an expanding portfolio of products, and a growing, loyal customer base have historically helped THG to push its topline,” S&P Global Ratings said in a report before the pandemic struck. “We believe these factors will continue fueling trading momentum over the next few years.”

Besides Moulding, the company’s shareholders include other members of management, Old Mutual Global Investors, funds managed by BlackRock Inc., Sofina, Merian Chrysalis Investment Co., Balderton and KKR & Co.

Moulding was previously chief financial officer of 20:20 Mobile, the distribution division of telecommunications company Caudwell Group, where he served for eight years before its sale to private equity. He leads The Hut Group with its other co-founder, John Gallemore.

JPMorgan Cazenove, Citigroup Inc., Barclays Plc, Goldman Sachs Group Inc., HSBC Holdings Plc, Jefferies and Numis are arranging the deal.

©2020 Bloomberg L.P.

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