When The Hut Group floats on the London Stock Exchange this month, its founder, Matthew Moulding, will do as he often does and take the less obvious path.
The listing — which is targeting a valuation of £4.5bn and is set to be Britain’s biggest in three years — had the potential to make the group, an online retailer that also sells technology, eligible for inclusion in the FTSE 100. It could have achieved an even higher valuation by floating in the US.
But in order to keep control of the business he founded in 2004, Mr Moulding has decided against the prestige of a “premium listing” that would make the company eligible for FTSE indices and hold it to higher governance standards. The Hut Group will instead be included in the “standard” segment of the market.
“We don’t want our journey to be cut short by someone making a hostile takeover bid,” he said. An unusual “founder share” structure that forms part of the listing will allow him to veto any such bids for three years.
Mr Moulding, who will continue to own a stake worth about £765m and stay on as chairman and chief executive, does not have the background of a typical tech entrepreneur.
He was born in 1972 and grew up in Colne, a Lancashire textile town, just as its cotton mills were closing. His father made a living resurfacing driveways. His parents split up, his brother went to prison and he was expelled from college, ending up with a factory job. But his old economics teacher persuaded him to return to education and a degree at Nottingham university.
Mr Moulding started The Hut with John Gallemore as a website selling CDs, but soon started offering to run websites for established retailers. Asda was the first to accept, with Tesco, Dixons and WHSmith following.
The pair gradually built a technology and logistics platform that allows companies to sell direct to consumers quickly and with minimal capital spending. Its clients now include consumer goods groups such as Nestlé and Procter & Gamble.
As with online grocer Ocado, another retailer that also sells its tech expertise, the technology business is relatively immature in terms of revenue, generating £128m last year. The Hut’s own-label health and nutrition businesses such as Myprotein and beauty website Lookfantastic, generated sales of almost £900m.
Over the years, it has attracted investment from retail veterans including former Tesco chief executive Terry Leahy, former Matalan boss Angus Monro, and the Lewis Trust, which manages the fortune of the family behind the River Island fashion chain.
But heavy spending on acquisitions — £340m in the past three years alone — and technology means it makes net losses in most years. And it still sells what Clive Black, head of research at Shore Capital, described as “a mish-mash” of products. TheHut.com, its online department store, offers everything from jeans to Lego.
In more recent years, spending on real estate and other assets has grown: £1bn on a new head office and tens of millions on two boutique hotels — used to host events — a country club and spa and two cargo planes, bought at the beginning of the pandemic to ensure products made in Asia reached its warehouses worldwide. The group makes most of its sales outside the UK.
Ownership of the hotels, along with several warehouses, will transfer to Mr Moulding before the company floats — just one element of a new remuneration scheme that will be adopted after the listing.
Mr Moulding intends “for the time being” to donate most of his £750,000 annual salary and any bonuses to charity. But he will receive £19m in rent each year from the properties and stands to receive additional equity — potentially worth almost £600m — if the company’s market value reaches £7.25bn by the end of 2022.
A similar executive pay scheme based on the share price at retailer Boohoo provoked a major shareholder rebellion earlier this year.
Until now, Mr Moulding and his colleagues have, in effect, chosen many of The Hut Group’s investors themselves. “All the shareholders in the group have come on board on a relationship basis,” he said. “We’ve got to know them; they’ve been the only partners we’ve spoken to”.
He added that the “incredibly favourable terms” they were offered resulted in stellar returns; several have made about 10 times their initial investment.
About 500 of the group’s 5,000 permanent staff are also likely to receive windfalls in the initial public offering. Senior managers can sell a quarter of their holdings, other staff half. “I don’t expect many will do so,” said Mr Moulding. “But these are people who typically had £25,000 [share] awards years ago that have turned into big numbers”.
Private equity firm KKR, which owns 17.8 per cent, is expected to be the main selling shareholder. But some new investors have already committed to buy into the offering, which aims to raise £920m, among them Janus Henderson and the Qatar Investment Authority, which are buying £100m and £75m of shares respectively. Existing shareholders BlackRock and Merian are increasing their investment.
Brent Hoberman, who co-founded Lastminute.com in the 1990s and now runs a consultancy that supports tech entrepreneurs, sympathises with the desire to retain control.
He said that the long-term focus of people such as Jeff Bezos at Amazon and Larry Page, co-founder of Google, contrasted with the more short-term view of public markets. “You have to ask: weren’t the founders right?”
Mr Hoberman noted that The Hut Group was floating comparatively late in its development, part of a global trend for companies to stay private for longer. “That means revenues and profits are likely to be less volatile, but it could also mean less upside for public investors,” he said.
Shore Capital’s Mr Black reckoned some shareholders were cashing in during a tech bubble. The Hut Group’s own ecommerce sales grew 43 per cent in the first half, as consumers shopped online during lockdown.
“There is a lot of opportunism here,” he said, adding that he thought the valuation of more than 36 times adjusted ebitda was very high. “It is not Amazon and it is not Ocado.”
However, he praised Mr Moulding for his entrepreneurialism and risk-taking. “He has generated a lot of wealth for the north-west and created thousands of jobs.”
His new shareholders, including those he will have no hand in choosing, will be hoping they do even half as well.
