Aritzia boosts IPO size on heavy investor demand

Share

Hot markets are helping Aritzia Inc., giving the Canadian retailer confidence to boost the size of its initial public offering by 25 per cent.

Aritzia set out to sell 20 million shares between $14 and $16 apiece. Because of "exceptionally strong institutional demand," the deal size has jumped to 25 million shares, according to someone familiar with the transaction.

If the shares are priced at the mid-point of the marketing range, the IPO will total $375-million.

The retailer's got a little lucky as it marketed to investors over the past month. Equity markets have been somewhat shaky, largely out of fear that the Federal Reserve would raise interest rates this week. But the Fed held off on Wednesday, deferring any rate hike until at least December, giving investors reasons to stay calm for at least a few more months.

The opposite happened with the last Canadian IPO. In May, mortgage company MCAP Corp. filed for a $275-million offering, and the deal was initially viewed as a slam dunk amid a hot housing market. By late June that narrative had changed, and the deal was pulled the week after Britain voted to leave the European Union because investors turned skittish.

When Aritzia started marketing, it wasn't clear how investors would react. The company's put up solid growth, with profit nearly doubling to $32-million last year. Even better, same-store sales, or sales from stores open during the previous fiscal year, jumped 17 per cent, which meant growth wasn't coming solely from opening new stores.

But the women's fashion market hasn't been particularly lucrative lately, and Aritzia falls into a middle ground between fast-fashion players such as Zara and H&M and luxury outlets such as Saks and Nordstrom. Historic middle ground players such as Jacob have filed for bankruptcy or bankruptcy protection in the past few years.

Aritzia itself also isn't benefitting from the IPO. The deal is a secondary offering, and founder Brian Hill and partial private equity owner Berkshire Partners are taking all of the money raised. The retailer seems to be betting that solid markets will last so that it can do subsequent stock sales to help pay back its debt, $145-million worth of which comes due in 2019.

However, Aritzia has a wealth of intellectual capital to help with its expansion. Its board of directors includes Aldo Bensadoun, who has helped oversee Aldo's successful global strategy, as well as former Lululemon chief financial officer John Currie. Lululemon is one of the few Canadian retailers that really exploded beyond its home borders.

At the end of May, internal valuations estimated Aritzia's shares to be worth $4.17 each, up from $3.19 the year prior. They will now list for between $14 and $16 per share, while the current owners' options carry a weighted average exercise price of $1.68.

The IPO's books close early Monday, and pricing will follow soon after.