Revolve IPO promises big return for TSG Consumer

TSG Consumer Partners stands to make a big return when Revolve Group goes public next week.

The Cerritos, California, online women’s retailer is set to price its offering on June 6 and trade the next day, a source said. Revolve is offering 11.76 million shares at $16 to $18 each, a May 28 SEC filing shows. The company is expected to go public on the New York Stock Exchange under the ticker RVLV.

Michael Mente and Mike Karanikolas, Revolve’s co-CEOs, founded the company in 2003.

Revolve calls itself a next-generation fashion retailer for Millennials and Generation Z consumers. The company uses bloggers and fashion influencers to market more than 500 brands on its platform.

For the year ended Dec. 31, the company reported net income reached $30.7 million from $5 million in 2017, the filing says. Sales rose 25 percent to $498.7 million from $399.6 million.

Revolve said it planned to use $40.8 million of proceeds to buy 2.4 million Class B shares from TSG and Capretto LLC, an outside investor, following a corporate conversion. The retailer is switching to a Delaware corporation and is changing its name to Revolve Group Inc.

TSG is Revolve’s first and only outside investor. The San Francisco PE firm invested $15 million in the company in 2012, the regulatory filing said. It’s unclear whether the $15 million is all TSG invested. Jennifer Baxter Moser, a TSG partner, told the Wall Street Journal in 2014 that the firm paid $50 million for a minority stake in Revolve.

TSG’s investment in Revolve came from the firm’s sixth flagship. TSG6 closed on $1.3 billion in 2011, the regulatory filing said. Following the IPO, Revolve’s co-CEOs will have about 67 percent of voting power.

TSG will own a big chunk of what’s left. TSG has about 34 percent, or 22.2 million, of Revolve shares before the IPO.

While private equity firms typically don’t offer shares in an IPO, TSG is selling part of its stake. TSG is offering roughly 7 million shares. At $17, the midpoint of Revolve’s IPO range, the sale is worth about $120 million.

This would leave TSG with about 15.2 million shares, or roughly 27 percent, of Revolve’s B shares. This holding is worth about $258 million. TSG will have 26.3 percent of voting power after the IPO, the S-1 said.

There’s no indication that TSG received a dividend from Revolve. Based on the number in the WSJ report, TSG is making roughly 7.5x its money on Revolve, including paper gains ($258 million plus $120 million). That return jumps to about 25x if only the $15 million investment from 2012 is counted. Either way, it’s a huge number for TSG.

TSG, San Francisco, targets the branded consumer sector, including food, beverage, restaurant and beauty companies. The firm closed TSG8, its latest flagship, on $4 billion in February. Other investments included Vitamin Water, smashbox cosmetics and Famous Amos cookies.

Executives for TSG and Revolve declined comment.

Action Item: Read Revolve’s latest SEC filing here.