Prada: to Ipo or Not to Ipo: That Is the Question, Again

Topics: Debt, Cash flow, Bond market Pages: 91 (30689 words) Published: June 22, 2013
The 15th
Financial Case Analysis Contest

Analysis Report

Case Name:PRADA: TO IPO OR NOT TO IPO: THAT IS THE QUESTION, AGAIN Report Title:SWEET ARE THE USES OF IPO
Team Name:WINDTRACKER

DATE: 16/12/2012

Contents
ABSTRACT1
1.Macro and Industry Analysis3
1.1Financing Environment3
1.1.1International Monetary Market3
1.1.2International Bond Market7
1.1.3International Stock Market9
1.1.4International Private Equity Market10
1.2Industry Analysis10
1.2.1Industry Life Cycle Analysis11
1.2.2Five Forces Analysis13
2.Financial Analysis and Forecasting20
2.1Financial Analysis20
2.1.1Profitability Analysis20
2.1.2Debt Solvency Analysis24
2.1.3A Close Look at Prada’s Cash Flow27
2.2Forecasting and Capital Needed33
2.2.1Forecasting Pro Forma33
2.2.2Capital Needed35
3.Financing Alternatives Selection38
3.1IPO Alternative39
3.1.1Current Environment39
3.1.2Pros and Cons44
3.1.3Simulations46
3.1.4Impact on Future Growth53
3.2Strategic Partner Alternative57
3.2.1Current Environment57
3.2.2Pros and Cons58
3.2.3Simulations61
3.2.4Impact on Future Growth74
3.3Debt Alternative81
3.3.1Current Environment81
3.3.2Pros and Cons86
3.3.3Simulation88
3.3.4Impact on Future Growth93
3.4Other Financing Alternatives96
3.4.1Commercial Paper96
3.4.2Project Financing97
3.5Financing Method Comparison98
3.5.1Immediate Effect Comparison under TAGCO98
3.5.2Long-term Effect Comparison under FRICO100
3.6Recommendation on IPO103
3.6.1Tax-related Recommendations103
3.6.2Control-related Recommendations104
3.6.3Other Recommendations106
4.Risk Analysis107
4.1Macro-economy Risk107
4.1.1Interest Rate Risk107
4.1.2Exchange Rate Risk108
4.1.3Tax Rate Risk109
4.2Operation Risk110
4.2.1Counterfeit Product Risk110
4.2.2Brand and Reputation Risk110
4.2.3Instability of International Market Risk110
4.2.4Key Person Risk111
4.3Financial Risk111
4.3.1Seasonal Fluctuation Risk111
4.3.2Cost of Luxurious Fabrics Risk112
5.Conclusion112
Appendix114
Reference118

ABSTRACT
Prada is an Italian high-end luxury brand specializing in luxury clothes, handbags and accessories. Prada family dominates the company through layers of shell firms, at last Prada Holding BV owns 95% of the share of Prada Spa. Now the company has to tackle to major problems. First, Prada has a 1 billion to-be-matured debt, almost half of which in the next six months. Among the 1 billion debt, the parent company, Prada Holding BV has 600 million while Prada Spa owns the remaining 400 million. Prada family would like to repay the debt with the financing conducted by the Prada Spa. However, they are still hesitating which financing alternatives should they choose. Second, in the downturn of the world economy, Asia, especially China, has become the new boost area where Prada eagers to make substantial investment to realize its expansion plan. Now the question comes back to that where and how will the family acquire the needed cash. The analysis is made up of five parts.

In the very beginning, a macro analysis tries to bring up an overview on the worldwide financing environment and on the luxury goods industry. After that, an analysis on the Prada Spa current financial situation is made, and then, with reference to the Prada expansion plan, we quantitates a detailed capital budget. Up to now, the total financing gap is determined. The third part comes to the three different financing alternatives, respectively IPO, strategic partner and debt. For each of them, the related cost, timing, amount of cash are listed throughout some simulation and impacts on the Prada future are also discussed from several aspects. The next is to compare the three alternatives all together under a framework, derived from FRICO analytical method, to review both the immediate and long-term effect on the...
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