New Look valuation prompts hopes for a market revival

The improving situation raises the prospect of renewed corporate activity, such as sales or IPOs, although that is still unlikely in the immediate term.

Last week, SVG Capital wrote up its investment in fashion group New Look by £8.7m to £20.4m – an increase of 74%. SVG, which mainly invests through Permira, said the shift reflected “an increase in both earnings and public company comparable earnings multiples used in the valuation”.

The valuation methodology used by private equity investors does not typically reflect the valuation that might be achieved in the event of a sale or float. Usually, only the equity is valued and debt – a crucial factor – is not.

However, valuation rises – following high-profile problems that have hit some private equity-backed retailers, including Robert Dyas – will be welcome news as retailers including Blue Inc, Ocado and Pets at Home ponder IPOs.

Private equity sources cautioned that despite valuation improvements, a swathe of exits will not necessarily follow. One said: “There are a large number of businesses that are now worth a lot less than they were, even in an improving market. A handful have performed strongly and there will be opportunities to exit.”

David Williams, operating partner at Duke Street Capital and chairman of Original Factory Shop, said it is difficult to draw general conclusions from an individual case, but added: “A lot of businesses bought by private equity were out of favour when they were bought, but private equity rigour will prove to be very good from a valuation perspective.”

New Look chairman Phil Wrigley said the business continues to trade well, but downplayed the likelihood of a float soon. He said: “There’s been reasonable activity on things like rights issues, but little significant in IPOs. Retail businesses are not typically the first back to market – they’re typically second or third wave.”