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The country has a reputation for manufacturing high- quality designer shoes for fashion houses using small production units
The country has a reputation for manufacturing high- quality designer shoes for fashion houses using small production units. One large retail chain which sells high- quality women's shoes is Tasselli. In 2017, the brand floated just over 20 per cent of the business on the stock market. The brand, with over 90 stores, planned to open about five to ten further stores a year between 2017 and 2019. The brand became popular after being featured in a Hollywood movie, and its growing popularity in Europe saw it featured on the cover of a leading magazine. In its prospectus, Tasselli promised investors an annual sales growth of more than 7 per cent. The company particularly planned to grow its presence in Europe. The IPO valued Tasselli at €272.8 million. The prospectus also acknowledged that Tasselli's success could be negatively affected by downturns in the economy or consumer confidence. The business environment for luxury goods became more challenging in 2017 with weakening demand from shoppers. It was reported that the luxury goods market in 2017 had slowed by an estimated 2 per cent on 2016 figures. It was reported that Tasselli expected to make around €25 million of profit in 2017 on sales of €150 million. It had favourable operating profit margins of around 9 per cent. The flotation raised about €100 million. Tasselli's CEO, Carlos Bonnetti, and the company's Creative Director, Francesca Totti, retained small stakes in the company and the flotation enabled them to be rewarded in shares if they improve the company's performance and share price. The share price closed at €1.62 after the first day's trading, 1 cent higher than the initial flotation price of €1.61. Q (a) Define the term company prospectus. (2 marks) (b) Explain one possible motive for Tasselli's IPO. (4 marks) (c) Assess the drawbacks to Tasselli of going public. (10 marks) (d) Assess whether you think the flotation will be successful. (10 marks)
Expert Solution
The company has to utmost take care of its growth prospects and its targets that they think of achieving due to this. We know that once a company is public every action of it and every move is scrutinized by investors and analysts around the world who are genrally interested in the question rearding the companies growth and its quarterly earning target. If a company is able to meet its target then all the investors will be willing to invest and thus the stocv prices will increase but if its not able to meet its target then investors will not invest in future and its stock prices will fall. The leader sometime may have a long term prospect of growth but this stock prices forces the company to focus too much on growth and thus the long term objectives may be detoriated. Thus if the leader targets on long term growth and fails to meet the short term growth it may cause company TASSELLI to lose value and thus the leadership might be replaced. Also there are various legal fees, auditor fees,registration and printing costs involved hence these costs have to be taken under consideration as well
Conclusion- Although by going public it may help in fundraising, publicity and credibility the founders must think of how the business will function beforehand and will it be able to meet the short term demand of the public and beat the costs necessary and hence think carefully before going public.
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