IPO Launch: Leslie's Finalizes $600 Million IPO Plan


Leslie's (LESL) seeks to raise $600 million in an IPO of its common stock, according to an S-1 registration statement.

Phoenix, Arizona-based Leslie's was founded in 1963 to create a network of retail locations providing pool and spa products and services in the U.S.

Management is headed by Chief Executive Officer Michael Egeck, who has been with the firm since February 2020 and was previously CEO of PSEB Group, a company comprising the Eddie Bauer brand and PACSUN teen retailer.

Below is a brief overview video of Leslie's:

Source: Leslie's

The company’s primary offerings include:

  • In-store testing
  • On-site installation and repair
  • Equipment, parts and accessories
  • Chemicals

Leslie's has received at least $278 million from investors including private equity firm L Catterton.

The firm sells its products and services through 934 branded locations and an online presence.

Management says it has a dominant market share of 15% with a physical network that is 'larger than the sum of our twenty largest competitors.'

Selling, G&A expenses as a percentage of total revenue have been rising as revenues have increased.

The Selling, G&A efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Selling, G&A spend, rose to 0.5x in the most recent reporting period.

According to a 2020 market research report by IBISworld, the U.S. market for swimming pool equipment has contracted by an average of 1.1% from 2015 to 2020.

In 2019, revenue was expected to decline by 4.3%.

Another report expects the global pool equipment and maintenance market to grow at a CAGR of 10.8% from 2016 to 2022, reaching $17 billion in total value.

Also, the North America region will likely continue to account for the highest demand by region, with the residential segment representing the largest contributor by market segment.

Major competitive or other industry participants include:

  • Mass market retailers
  • Manufacturers
  • Distributors
  • Service providers

Leslie's’s recent financial results can be summarized as follows:

  • Growing topline revenue
  • Increased gross profit but uneven gross margin
  • Fluctuating operating profit and increased net income
  • Sharply increasing cash flow from operations

Below are relevant financial results derived from the firm’s registration statement:


Source: Company registration statement

As of June 27, 2020, Leslie's had $148.9 million in cash and $1.46 billion in total liabilities.

Free cash flow during the twelve months ended June 27, 2020, was $79.3 million.

Leslie's intends to raise $600 million in gross proceeds from an IPO of 40 million shares of its common stock, offered at a proposed midpoint price of $15.00 per share.

The selling stockholder, private equity firm L Catterton, is offering 10 million shares and the company is selling 30 million shares.

BlackRock has indicated a non-binding interest to purchase up to $100 million shares of the IPO at the IPO price. This is a positive signal of investor interest in the IPO.

Assuming a successful IPO, the company’s enterprise value at IPO would approximate $3.8 million, excluding the effects of underwriter over-allotment options.

Excluding effects of underwriter options and private placement shares or restricted stock, if any, the float to outstanding shares ratio will be approximately 21.44%.

Management says it will use the net proceeds from the IPO as follows:

to repay in full the entire outstanding amount under our Senior Unsecured Notes, which mature on August 16, 2024 and which was $390.0 million and carried an effective interest rate of 9.81%, in each case, as of June 27, 2020; and

to the extent of any remaining net proceeds, for working capital and general corporate purposes, which may include the repayment of a portion of the borrowings under our Term Loan, which matures on August 16, 2023 and which had $815.3 million outstanding and carried an effective interest rate of 3.67%, in each case, as of June 27, 2020.

Management’s presentation of the company roadshow is available here.

Listed bookrunners of the IPO are Goldman Sachs, Morgan Stanley, BofA Securities, Jefferies, Nomura, Baird, Guggenheim Securities, Piper Sandler, William Blair, Telsey Advisory Group, Loop Capital Markets, Ramirez & Co. and AmeriVet Securities.


Leslie's is seeking public investment capital to pay down debt likely associated with its private equity firm owner.

The firm’s financials show impressive revenue growth, net profit growth and strong free cash flow.

Selling, G&A expenses have varied as revenues have increased; its Selling, G&A efficiency rate has improved markedly in the most recent reporting period.

The market opportunity for pool products is uncertain but the firm has a dominant market share and presence built up over decades of developing its retail and service network.

Goldman Sachs is the lead left underwriter and IPOs led by the firm over the last 12-month period have generated an average return of 65.4% since their IPO. This is a top-tier performance for all major underwriters during the period.

As to valuation, management is asking IPO investors to pay an EV/Revenue multiple of 3.73x.

It’s difficult to find a direct comparable, but given the company’s industry dominance, revenue growth rate despite the Covid-19 pandemic, earnings and free cash flow, the IPO price assumption appears reasonable.

My opinion on the IPO is a BUY at up to $15.00 per share.


Expected IPO Pricing Date: October 28, 2020

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(I have no position in any stocks mentioned as of the article date, no plans to initiate any positions within the next 48 hours, and no business relationship with any company whose stock is mentioned in this article. IPO stocks can be very volatile in the days immediately after an IPO. Information provided is for educational purposes only, may be in error, incomplete or out of date, and does not constitute financial, legal, or investment advice.)

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