Pounding the Market: Poundland’s road to an IPO
October 8, 2019
2 min read
What's going on here?
Poundland’s parent company, Pepco Group is considering an Initial Public Offering (IPO) next year. Before that happens, Poundland aims to reduce its expenditure on the majority of its stores’ rent.
What does this mean?
An Initial Public Offering (IPO) is when privately owned companies sell their stocks to the public. Through an IPO, companies can raise equity capital from investors.
There is speculation surrounding a potential Pepco Group IPO. These rumours emerged because Pepco Group only recently renamed itself from Pepkor Europe. Furthermore, the company intends to operate in 300 more locations through its subsidiaries.
Through Pepco Group’s expansion across Europe, profits have increased by 18% to £289 million. Furthermore, Pepco Group intends to open a further 350 Dealz stores (which have the same concept as Poundland). Recently, Pepco Group has recently been demonstrating characteristics typical of a public company, like disclosing its business strategies. Pepco Group may be doing this to assess if having an IPO will affect their businesses. However, Pepco Group has not disclosed how the expansion of its business may impact its management and corporate governance.
What's the big picture effect?
Recently, start-ups have enjoyed success with IPOs. Nevertheless, it is vital to assess if Pepco Group, as an established limited company, will enjoy similar success.
According to Markets Insider, one of the reasons IPOs have failed in 2019 is because of investors’ lack of confidence in the stability of the economy. As the economy has peaked in August 2019, investors believe that the market value of shares is likely to deplete soon and are reluctant to invest.
In 2019, investors would rather purchase less volatile shares such as real estate and healthcare institutions due to reduced fluctuations in demand for these markets. As Pepco Group is rapidly expanding within the next five years, investors may be uncertain of the outcome of this expansion. For instance, investors are likely to be concerned about profit margins potentially exceeding the fixed cost of Pepco Group’s new stores.
Ultimately, Pepco Group will have to assess if it has the resources required for going public and expanding its business. Though Pepco Group may go public to raise capital through equity and stocks, it would have to consider the impact of having a public company on its business operations. For instance, investors are likely to have voting rights. As such, Pepco Group must decide if the benefits outweigh the drawbacks of both business expansion and an IPO.
Report written by Marselia Ong
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