G-Iii Apparel Group, Inc.
Posted: 16 Sep 1998
Date Written: September 1997
SUBJECT AREAS: Initial Public Offerings, Valuation, Earnings Management, Securities Underwriting. CASE SETTING: Late 1989, apparel manufacturer and distributor located in NY, with production in Korea. IPO selling $26 million of an $80 million company.
REQUEST FOR COPIES: http://linux.agsm.ucla.edu/giii/. There are four versions of the case, ranging from 13 pages to 25 pages, according to desired level of detail. This includes 3 pages from the prospectus itself. A very detailed instructors guide is available upon request. It tries to link the case and discussion to findings in the academic literature (with full citations and references).
Situation: The case presents the initial public offering (IPO) of G-III, a leather apparel producer. Unlike biotech or computer IPOs, the G-III company is not in a sexy growth industry, but in an "almost-commodity" industry. G-III has operated for a good number of years and has revenue-generating operations. Furthermore, apparel is relatively comparable across different companies, which presumably allows students to evaluate the relative potential of G-III.
The case illustrates how difficult it is to value even established companies off of comparables. In addition, most IPOs manage their reported earnings rather aggressively, and G-III is no exception. A naive application of comparables thus misleads and later unpleasantly surprises investors/students. The instructor's note details how this is done and what its consequences are. (In my opinion, the "surprise factor" is of great didactic use: the instructor adds value by pointing out the mistakes in most students' analyses of what is the most standard/common IPO that I could find.)
The case also contains some detail about the IPO and underwriting process, and lends itself to a discussion of many IPO related issues (such as the role and selection of the underwriter) and IPO and apparel market conditions. Smaller versions (progressively) exclude details on industry, market, company, comparables, and IPO market conditions.
The case is geared towards a second or third course in corporate finance, or a valuation course. It can be taught either over one or two class sessions. It has been used in my own and others' classes. I expect to refine the teaching note and perhaps change some minor parts of the case in the next year, but the case is fairly stable by now.
Suggested Citation: Suggested Citation