Prada: To IPO or Not to IPO
In the current scenario, Prada is facing a debt repayment problem which is expected to be due in the next twelve months. To resolve this issue, the management and the financial expert are considering an IPO to raise funds to repay the long term debts and to invest in the Asian markets. However, before making any decision the management must consider few financial signals to resolve the issue effectively and efficiently.
One of the main information given in the consolidated statement of financial position is that the overall long term debt of the Prada group is 303.4 million Euros and the overall long term liabilities are 496.7 million Euros. Therefore, in these circumstances, on the basis of annual revenue and the expected growth in the market, the cash flow from the operations is 367.7 million Euros in the year 2011 will increase in the next year. By improving the cash inflows via operations, Prada can resolve long term debt issues to a great extent.
It is very important for the management to understand that Prada has shares in other leading brands and Prada is controlling other brands. Therefore, it is highly probable that other brands will invest funds accordingly and the burden of investment will be reduced. For example, if one child company of Prada is in good position, then they can raise funds via long term debt which can be utilized by the Prada group to capture new market in the Asia.
The Prada group has the reserves of 945.4 million Euros in the year 2011 as compared to the long term debts of 303.4 million Euros. It is highly probable that the most of the portion of the reserves is cash held for reinvestments. Therefore, the reserves can be used to repay the long term debts and to reinvest in the new markets, instead of going for an IPO.
