£4.5bn float to put The Hut Group founder in line for £700m windfall

The co-founder of The Hut Group, the digital consumer brands retailer, could land one of the biggest payouts in British corporate history from an incentive scheme to be disclosed this week alongside plans for a £4.5bn stock market flotation.

Sky News can reveal details of a long-standing share plan that could hand more than £700m-worth of shares to Matthew Moulding, the company’s executive chairman, if it achieves a market capitalisation of £7.25bn by December 2022.

Mr Moulding, who helped establish The Hut Group in 2004 and has since grown it into a giant of Britain’s digital economy employing 7000 people, already owns a significant minority stake in the company.

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Image: The group is expected to announce plans to float in London

City sources said that The Hut Group would announce as soon as Thursday a plan to file its intention to float on the London Stock Exchange, with details of the incentive plan to be disclosed in its prospectus.

The company has pencilled in September 16 for its shares to begin trading, they added.

In order for the massive incentive scheme to pay out, it would require an uplift in The Hut Group’s value after its initial public offering (IPO) of well over 30% during a relatively brief period that could be affected by souring investor sentiment about Brexit and COVID-19, according to insiders.

The Manchester-based business has become one of Britain’s biggest technology success stories, being feted by politicians during its 16-year history including Boris Johnson, the prime minister, and David Cameron, one of his predecessors.

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It owns cosmetics brands such as Christophe Robin, ESPA and Eyeko, and sells third-party branded products such as those made by Glossybox and LookFantastic.

Investors are particularly enthusiastic about its role as a third-party logistics and infrastructure provider, powering some of the world’s biggest consumer brand-owners – including Johnson & Johnson, Nestle, Procter & Gamble and Walgreens Boots Alliance – through its tech platform THG Ingenuity.

People walk through the Canary Wharf financial district of London, Britain, December 7, 2018
Image: The IPO will see between £500m and £900m of new shares sold to institutional investors

Its IPO, which will be the biggest City float of 2020, will involve The Hut Group selling between £500m and £900m of new shares to institutional investors.

People involved in the deal said the company had already seen demand for shares from potential backers of well over £1bn, reflecting a conviction about the company’s long-term growth prospects.

Institutions have been briefed on the incentive plans that could hand Mr Moulding the massive share windfall, and are broadly said to be comfortable with the proposals.

One insider added that more than 500 employees of The Hut Group “from the warehouse to the boardroom” had been given equity in the business, with roughly 200 participating in the scheme that could vest in just over two years’ time.

By floating, the company would have created more millionaires than any other in British corporate history, he claimed.

Under the incentive scheme, Mr Moulding’s stake would not rise above 25%, meaning that after being diluted in the IPO, the maximum he is likely to be awarded would be approximately 10% of the company – which at a £7.25bn market value would be worth £725m.

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That would be in addition to an existing shareholding worth more than £1bn, propelling the entrepreneur firmly into the upper ranks of Britain’s super-rich.

One investor cautioned that the final figure could be higher, with other employees also in line to receive – in aggregate – several hundred million pounds in shares.

The incentive stock would lapse if the market valuation threshold is not met, they added.

It would be one of the richest share schemes ever implemented by a UK-based public company, and dwarf that of Boohoo, the online fashion retailer which in June unveiled plans to award top managers shares worth £150m if its shares rose by two-thirds over a three-year period.

If The Hut Group shares do vest, the scale of such a payout may provoke controversy in the wake of a period when hundreds of thousands of workers have lost their jobs because of the coronavirus pandemic.

Nevertheless, allies of Mr Moulding point to the thousands of jobs created, and millions of pounds in taxes paid, by The Hut Group since it was set up.

A source said The Hut Group’s share scheme had been put in place three years ago to compensate Mr Moulding and other employees for the dilution of their stakes when early investors including Balderton Capital injected money into the company in 2010.

Boohoo
Image: Online fashion retailer Boohoo in June unveiled plans to award top managers shares worth up to £150m

KKR, the private equity giant which became a shareholder in 2014, is among the investors keen to cash out in the IPO

The Hut Group is understood to have opted to list in London despite protracted overtures from international exchanges, including New York’s Nasdaq, which successfully lured the British-based online fashion business Farfetch last year.

As part of its IPO, the company has handed Mr Moulding a ‘founder share’ that would enable him to veto any hostile takeover bid for the company for a limited period.

That structure, which has been developed in conjunction with the City’s listing authorities and is widely deployed at US-listed companies, will lead to The Hut Group having a standard, rather than premium, listing.

One investor said The Hut Group’s flotation would be “a rare bright spot for the City amid the worst IPO drought for more than a decade”.

“It’s a sign that the LSE is keen to become more attractive to entrepreneurial businesses, and reverse the flow of UK tech companies listing on Nasdaq.”

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In its first year of operation, The Hut Group recorded £1m in sales, a figure which had grown by 2019 to £1.14bn, with earnings before interest, tax, depreciation and amortisation of £114m.

In recent months, The Hut Group has held detailed talks with some of the world’s leading technology funds about a private or public fundraising.

Seven banks, led by Citi and JPMorgan, have been appointed to work on the IPO.

The float’s accelerated timetable is said to have scuppered plans to offer retail investors the opportunity to participate in the share sale, sources said.

A spokesman for The Hut Group declined to comment on Wednesday.

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