Ed Wass, Mobeus director, talks about the success of Virgin Wines’ IPO
The enduring shift to online sales meant Virgin Wines’ IPO delivered a great outcome for all parties, says Mobeus director Ed Wass.
What is the deal?
The AIM debut of Virgin Wines, one of the UK’s largest online wine retailers, in March 2021. In 2013, we co-led a £15.9m investment into the group with Connection Capital. The current year is expected to see turnover grow from £40m to £60m, and profit to more than double, from £2.5m to about £5.5m.
Our VCT funds retained their stake to benefit from future growth, while Connection, which as an EIS fund has shorter investment terms, realised a great return for its clients.
How was the deal structured?
The market cap on admission to AIM was £110m. The IPO was substantially oversubscribed and attracted strong interest from high-quality institutional investors. We retained our stake.
Between them, our four evergreen venture capital trusts (VCTs) own about 36%; senior management owns 20%. The gross proceeds were £48m; £13m of primary capital paid down the institutional debt and the transaction fees, and £35m went to the selling shareholders. Connection sold its stake, which delivered a 7.6x return to its clients, employees sold 50% and management sold one third.
What were the challenges?
We initially considered a traditional trade exit. Lincoln International advised us on our early thinking about that. We then decided to look at an IPO. Discussions in early autumn clarified shareholder ambitions. Connection was looking for an exit to deliver funds back to its clients, while management wanted to continue with the business but sell some shares. Our VCTs can be patient longer-term investors because of the nature of the funds.
What were the timescales?
We started preparations in early summer last year, in the middle of the UK’s first lockdown. We thought we’d be ready in Q1 2022, or perhaps 2021, but that idea evolved. Thanks to its online offering, Virgin Wines’ Christmas trading really delivered.
We had potential IPO valuations and also indicative offers from trade. The IPO offered a highly competitive valuation. Management could also take some reward for its hard work, but retain a significant stake and continue running the business. A trade sale would likely have offered a very different future for them.
Once that was decided, we thought Q1 2021 would be possible and pursued that very hard.
Who were the advisers?
Liberum Capital was nominated adviser and sole broker, while KPMG and Smith & Williamson were reporting accountants. Gateley provided legal advice to the company and the shareholders. Travers Smith provided legal advice to Liberum. Lincoln International acted as financial adviser in the early stages. Swan Partners provided advice on the transition to IFRS. PR advice came from Hudson Sandler.
What is the strategy going forward?
We’re confident management will increase market share, in a growing market. And the business will continue to benefit from its position at the intersection of two significant trends: the premiumisation of the wine market, and the shift to online that will accelerate and endure.
After the agreed lock-in restrictions lapse, we may sell down the VCT stakes when this will deliver the best returns for our shareholders.
About the article
Read the full article extracted from Corporate Financer May 2021 edition. Exclusively for Corporate Finance Faculty & Faculties Online members, you can access our highly regarded magazine in its originally designed form, and our extensive archive brought to you by the ICAEW Corporate Finance Faculty.