Douglas potential 2024 IPO

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Douglas is a 200 year old German retailer that now operates across Europe. It’s majority-owned by private equity firm CVC Partners, and is said to be considering an IPO listing on the Frankfurt Stock Exchange in this quarter. As its likely to be the first major test of European share market strength this year, it’s an interesting business to analyse.

Douglas History

Douglas was founded in 1821 as a soap manufacturer in Hamburg, Germany by a Scottish soap maker (hence the name!). It stayed in the family until 1878 when the second generation sold out. It expanded to include other products and by the 1970’s was known as “Parfumerie Douglas”.

In the 1980’s Douglas expanded beyond Germany into The Netherlands, France, Italy and the United States, and by 2000 to the remainder of Western Europe, Central and parts of Eastern Europe. It commenced online sales in 2000.

Douglas’ on again, off again relationship with the stock exchange

By 2000 Douglas was under managerial (and partial ownership) of the Kreke family, who (with PE firm Advent International) had already orchestrated a takeover of the company in 2013, delisting from the Frankfurt Stock Exchange. This allowed the business to divest business lines so it could focus on its strength – perfume. And focus it did – through the acquisition of the 455 store French perfume chain Nocibé.

Only 2 years after delisting, the Kreke family planned to re-list Douglas in 2015.

Shortly thereafter, in June 2015, the Kreke family sold 85% of the company to CVC Partners (another Private Equity firm)!

The buying spree

When a PE firm takes over a business, you generally expect 3 things:

• A big focus on swift growth.
• A big increase in lending to leverage that growth.
• A relatively quick exit event.

Which is exactly what Douglas got - like a teenager in a perfume store shopping with their grandmother, Douglas bought up big:

• 2017 – Bodybell (Spain)
• 2017 – Parfumerias (Spain / Basqueland)
• 2017 – Limoni (Italy)
• 2017 – La Gardenia (Italy)
• 2018 – Akzente / Parfumdreams (Germany & 10 other European countries).

The Covid Hangover

Rapid, leveraged expansion also means less buffers in case of economic disturbance, so quick reactions are needed when business drops – such as when Covid caused a sales decline of 6.2% and operating result decline of 16.7% in 2020.

To arrest the impact of Covid on its business, Douglas closed almost 21% of its European stores (500 out of 2,400) in 2021, sold off a few Nocibé stores.

At the same time it ramped up its online stores, growing that revenue by 40% to €822m. This was a great move – it helped to partially offset store reductions and more importantly built a solid base for post-Covid recovery.

The Management change

Douglas appointed a new CEO in November 2022: Sander van der Laan. Van der Laan was previously CEO of Action, a Dutch discount retail chain.

Detour: Action

It’s worth diverting to explore the business that van der Laan came from, to really understand why he was appointed to drive growth in Douglas.

Action is a discount hardgoods retail (mostly non-food with a few long-life food lines) chain founded in a country where consumers pride themselves on finding discounts. Action was founded in 1993 and within 9 years had almost 100 stores in the Netherlands, then expanded to surrounding countries. It’s now active in a dozen countries with 2,500 stores, and carries about 6,000 SKU’s.

Sander van der Laan was Action CEO from 2015 to 2022, and during his tenure the company grew from:

• 655 to 1,869 stores
• 6 to 9 countries
• €2b to €5b revenue

Basically – if you’re a multinational retail chain like Douglas - that was hit hard by the Covid pandemic and are lumbered with €3.8b in debt (as of FY21) with a Consolidated Loss of €385m, you would be looking for somebody with van der Laan’s experience.

Douglas 2026: Let it Bloom

Douglas’ long-term strategy has a catchy name: Let it Bloom.

It takes the best bits of what worked to get the business through Covid, namely a focus on multi-channel sales (store + online), alongside what made Action successful – strong product cost control to lift margins, increased geographic footprint via store network, and operating efficiencies. This aims to grow Revenue to €5b with matching EBITDA growth by 2026.

2024 potential IPO

Now that we’re in 2024 Douglas has released its FY2023 results, and they’re very good. Here are a few highlights compared with prior year (adjusted figures to show only year to year performance, removing things like opened & closed stores):

• Net Sales up 9.1%
• EBITDA up 25% (this is higher than the 22.3% expected based on Q3 results, so things are gathering steam)
• Stable inventory days (127 days)
• Free Cashflow improved 31% (FY23: €481m, FY22: €367m)

So why would Douglas IPO now, instead of waiting to 2026, when the “Let it Bloom” strategy will be complete? There are a couple of reasons:

1. The 2026 strategy has worked so far, so selling now at an estimated valuation of €7b will ensure CVC doesn’t need to wait to make a good return on its investment.
2. Having a proven strategy that still has a few years to run will be attractive to IPO investors as they will have 2 years of profitable operations before rolling out the next strategy.

There is no doubt however that incoming investors will want to keep Sander van der Laan around to conclude “Douglas 2026: Let it Bloom”.

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👋 Hi, I'm the founder of Ascern Advisers. We do Strategic & CFO advisory for businesses with Growth Potential. DM me or email me at david@ascern.com.au if you want to chat.

The flow of water is a powerful analogy for the flow of money through the economy.