IPO Valuation Case Study

G-III produced a wide range of leather apparel, primarily moderately-priced women's wear:
coats, jackets, pants, and skirts. Although some product was produced under private label, most
product was sold under G-III's own brand names: G-III, SIENA, and CAYENNE. The G-III
women's division sold items from $40-$300 (retail price), SIENA sold items between $260 and
$1,800, the new CAYENNE division sold items between $100 and $500, and a recent push into
men's wear under the G-III label sold items with prices between $150 and $500.
G-III's prime competitors were WINLET, ANDREW MARK, MIRAGE, and US COOPER
SPORTSWEAR. Unfortunately, none of these were traded on a public exchange, and no
information as to their sales, etc., was available. (G-III believes itself to be the largest leather
outerwear producer, but with no public information from their competitors, this could neither be
confirmed nor dispelled.
Additional Information for Question 2
 G-III's long term debt after the IPO will be minimal (see exhibit 3) since some of the
proceeds of the IPO will be used to retire debt. For the calculation of W ACC assume
zero debt in the post-IPO period.
 You also have the following information a. Assume that levered Beta of G-IIII= 2 b.
Return on market = 10% c. Risk free rate = 5%
 3, Assume a planning horizon of 5 years after the IPO. Further assume that the net
income will grow at the following rates: a. 51 % in the year 1990 (in the year after the
IPO), b. 26% in the year 1991, c. 14% in the year 1992, d. 8% in the year 1993, e. 5% in
the year 1994 f. Beyond 1994, the expected growth rate of net income is 3%.
 4 In late 80s Oppenheimer ranked about 20th in the list of prestigious underwriters with
about 0.7% of the IPO market. It is thus a 'tier-2' bank concentrating primarily on
offerings too small for tier-l banks.

Case-Study Questions
1. How sound was G-III's business? Was it suitable for an IPO?
2. Why did G-III opt for an IPO rather than searching for alternative forms of capital?
Was the money raised in the offering put to good purpose?
3. Based on the information in the case, undertake a valuation, was G-III could have
been successfully complete the IPO.