Fashion is not always glamorous. On video calls, dressing for the office means business on top, comfort below. German footwear group Birkenstock has benefited from the trend. The maker of clunky and comfortable sandals usually relies more on the quality of its product than short-term fads for sales, but the bump has raised its profile. Family-owned and stolidly reliant in every sense, Birkenstock is attracting the interest of buyout groups, including CVC, which is seeking a deal at a reported €4bn value.
Sensible shoes are having a moment. Last week Permira announced it was selling down its stake in boot brand Dr Martens through a London flotation. Under private equity ownership, sales and profits at the boot maker have grown. So have anecdotal reports from long-term fans that product quality declined due to outsourced manufacturing.
Similar profit boosting exercises at Birkenstock would be a mistake. Already high margins reflect efficiencies within the manufacturing process. Its main factory operates continuously via shift work. Some manufacturing is outsourced to lower wage countries.
Thanks in part to this, profit margins at Birkenstock are already comparable with Dr Martens. Birkenstock garnered ebit margins of 21 per cent in the year to September 2019. Amortisation numbers are not disclosed but add in depreciation and the margin moves to 24 per cent. That is not so far from Dr Martens’ 27 per cent ebitda margin, which has doubled over the past two years.
Available accounts suggest Birkenstock sales, growing at an annual 15 per cent, stand to tip €1bn this year. Apply the 24 per cent margin and the mooted €4bn valuation for Birkenstock represents some 15 times this year’s estimated ebitda. That is below the 20 to 30 times ebitda multiple that trainer makers Adidas and Nike trade at. The multiple mooted for Dr Marten is at the lower end of that range.
The disparity suggests Birkenstock equity would likely prove a hit with public investors. Opting for a listing over a trade sale might also generate a higher sale price for existing owners — and allow fashionably unfashionable Birkenstock to follow in the footsteps of those cultish Dr Martens.
The Lex team is interested in hearing more from readers. Please tell us what you think of the Birkenstock/Docs pairs trade in the comments section below.
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