Birkenstock’s Weak Debut: Lessons and Implications for the Shaky IPO Market

The initial public offering (IPO) market is known for its ups and downs, but Birkenstock’s (BIRK) recent debut on Wall Street has certainly garnered attention for all the wrong reasons. The German footwear company’s IPO marked one of the worst debuts for a billion-dollar deal in a decade, highlighting the current fragility of the IPO market.

Birkenstock’s Tumultuous IPO

Birkenstock Holdings Ltd.’s IPO was highly anticipated, but it ended its first day of trading down 12.9% and experienced a 21% decline by the end of its debut week. This dismal performance placed it among the top five worst-performing billion-dollar IPOs of the past decade. The last time a debut was this disastrous was AppLovin Corp.’s IPO in April 2021, which suffered an 18.5% loss on the first day of trading.

The Factors Behind the Fall

Several factors contributed to Birkenstock’s lackluster IPO performance:

Market Timing: Timing is critical in the world of IPOs, and Birkenstock’s debut couldn’t have come at a worse time. The company’s investor roadshow coincided with a potential U.S. government shutdown, public holidays in multiple countries, delayed listings in Europe, and an outbreak of war in Israel. These external factors created a challenging backdrop for the IPO.

LVMH’s Earnings: Just hours before Birkenstock was set to begin trading in New York, its indirect backer, LVMH, reported disappointing earnings. LVMH’s lower-than-expected revenue figures and the observation that consumers were spending less in Europe negatively impacted investor sentiment. This downturn in the luxury sector weighed heavily on Birkenstock’s debut.

Valuation: Birkenstock priced its IPO just below the midpoint of its expected range at $46 per share, resulting in a valuation of $8.6 billion. This valuation was relatively high compared to its peers, which may have discouraged some investors.

Anchor Investors: Birkenstock, like many recent IPOs, relied on anchor investors to stabilize the offering. However, this strategy has not always yielded positive results, as exemplified by Instacart’s IPO, which is still trading below its IPO price. The allocation of shares to anchor investors can reduce liquidity and negatively impact the stock’s performance.

Investor Preferences: Birkenstock’s decision to allocate 90% of its IPO shares to long-only investors, rather than hedge funds or alternative asset managers, may have limited the stock’s upward potential after the IPO. Long-only investors typically hold shares for the long term, reducing demand in the open market. 

Birkenstock’s underwhelming IPO debut serves as a reminder that the IPO market can be unforgiving. Market timing, valuation, and investor preferences all play pivotal roles in determining the success of an IPO. As companies continue to navigate the unpredictable IPO landscape, careful planning and a thorough understanding of market dynamics will remain essential for achieving a successful debut on Wall Street.