Eyeglass Retailer National Vision Plans Capital Raise to Compete with Luxottica

Private equity-backed discount eyeglasses retailer National Vision Holdings Inc. has set the terms for a forthcoming initial public offering that could raise up to $363.4 million.

National Vision, which sells both branded and private-label glasses, said in a regulatory filing on Monday, Oct. 16, that it plans to offer 15.8 million shares at $18 to $20 per share, which would raise $300.2 million at the midpoint. Assuming underwriters exercised their full option for 2.37 million additional shares, a price at the midpoint would raise $345.2 million. The Duluth, Ga., company, which filed for an IPO on Sept. 29, plans to list on Nasdaq under the ticker symbol EYE.

PE firm Kohlberg Kravis Roberts & Co. LP (KKR) agreed to acquire a majority stake in the former National Vision Inc. on Feb. 7, 2014, from Boston-based sponsor Berkshire Partners LLC. Berkshire had acquired National Vision in 2006 for $190 million.

KKR holds a 76.97% stake in Vision Holdings, which would fall to 58.24% to 60.15% after the offering, depending on the exercise of the underwriters' option. Berkshire's stake of 18.01% would drop to 13.62% to 14.07%.

As of July 1, National Vision operated 980 retail stores across five brands and 19 consumer websites, including two wholly owned brands, America's Best and Eyeglass World, and the Vista Optical locations in military commissaries. National Vision also operates vision centers in 227 Wal-Mart Stores Inc. (WMT) retail locations. The companies' 27-year agreement expires on Aug. 23, 2020, and will automatically renew for three years unless either party elects not to. Walmart sales accounted for 12.7% of 2016 net revenue. E-commerce sales, including proprietary sites and partners including Wal-Mart Stores Inc. (WMT) , its Sam's Club warehouse store brand and CVS Health Corp. (CVS) , accounted for 4% of 2016 sales.

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National Vision generated earnings of $14.8 million in 2016, up sharply from earnings of $3.6 million in 2015 and a loss of $27.1 million in 2014. Net revenue of $1.2 billion last year rose 12.6% year over year.

National Vision in its Form S-1/A cited an aging population, periodic glasses replacement coinciding with optometric exams, increased screen time and "an increasing societal focus on health and wellness," including an emphasis on preventative care, increased focus on health-oriented products and ultimately longer lifespans, as reasons for sales to continue increasing.

The "value" U.S. optical retail subsegment grew from 2007 to 2016 at a compound annual growth rate of 6.6%, National Vision said, citing ophthalmic trade publication Vision Monday, nearly twice the overall U.S. optical retail growth rate. The 10 largest optical retailers held a 32% market share in 2016, up from 18% in 1992.

National Vision identified its value competition as independent practitioners, specialty retail chains and warehouse store chains. In the broader eyewear category, National Vision competes with retailers such as LensCrafters, Pearle Vision and Visionworks. LensCrafters and Pearle Vision are both owned by Luxottica Group SpA, which makes brands including Oakley, Oliver Peoples, Persol and Ray-Ban. Luxottica, whose products are stocked in National Vision stores, is in the midst of a €45.2 billion ($53.2 billion) merger with Essilor International SA, a lensmaker and longtime exclusive lens supplier to National Vision. Visionworks is owned by nonprofit Highmark Health and private equity firm Centerbridge Partners LP.

National Vision opens about 75 new stores per year and believes that rate is sustainable, with a focus on America's Best stores in California in the near term.

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The company, which estimated net proceeds of $277.9 million to $320.2 million from the IPO, plans to use the funds to repay the $125 million outstanding on second-lien term loans and $150 million of the balance on first-lien term loans. Some $804.4 million was outstanding on the latter as of July 1.

National Vision has paid KKR and Berkshire about $6 million in management fees since the 2012 fiscal year and most recently paid a $171 million dividend in February.

As of Sept. 30, National Vision carried total debt of $922.4 million, versus cash and equivalents of $27.6 million.

Merrill Lynch, Pierce, Fenner & Smith Inc.; Goldman, Sachs & Co.; Citigroup Global Markets Inc.; and KKR Capital Markets LLC are joint bookrunning managers for the offering, with Morgan Stanley, Jefferies LLC, UBS Securities LLC and Wells Fargo Securities LLC also acting as bookrunners. Guggenheim Securities LLC, Mizuho Securities USA LLC and Macquarie Capital (USA) Inc. are the co-managers.

Simpson Thacher & Bartlett LLP is advising National Vision. Latham & Watkins LLP represent the underwriters.

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