Farfetch Limited, the London-based fashion marketplace, announced that it has agreed to issue and sell, via a private placement, convertible senior notes in an aggregate principal amount of $250 million.
Tencent, a global technology pioneer headquartered in Shenzhen, China, has committed to a strategic investment by agreeing to purchase $125 million of the notes, and San Francisco-based investment firm Dragoneer has agreed to purchase the remaining $125 million of notes. Closing of the transaction is subject to customary conditions.
The financing will supplement Farfetch’s current liquidity position. As of December 31, 2019, the company’s cash and cash equivalents balance amounted to approximately $320 million.
The additional capital supports Farfetch’s long-term strategy of delivering a global technology platform for the luxury fashion industry and facilitates the company’s continued focus on executing its growth plans, including in the key China market, and driving towards operational profitability.
Tencent’s investment in Farfetch elevates the ongoing relationship between the two companies, which, through Farfetch’s role as the premier luxury gateway to China, is helping western luxury brands reach the Chinese consumer through Tencent’s WeChat platform.
Farfetch currently powers a roster of more than 80 luxury brands on WeChat including Moncler, Balenciaga, Saint Laurent, Armani, and Ralph Lauren, and is a partner to these brands for new developments and launches on WeChat, pioneering the use of key opinion leader (KOL) mini-programs such as Mr. Bags, Shiliupo and ByFresh.
The Notes will be issued upon closing pursuant to an Indenture with Wilmington Trust, National Association, as trustee. The Indenture includes customary covenants and sets forth certain events of default after which the notes may be declared immediately due and payable and sets forth certain types of bankruptcy or insolvency events of default involving the Company after which the Notes become automatically due and payable.
The notes will mature on December 31, 2025, unless earlier converted, redeemed or repurchased in accordance with their terms.
The notes will be senior, unsecured obligations of the company, bearing interest at a rate of 5.00 percent per year, payable quarterly in arrears on March 31, June 30, September 30, and December 31 of each year, commencing on March 31, 2020. The notes may be converted at an initial conversion price of $12.25, which reflects a 31 percent premium to the 30-day VWAP share price when the transaction was agreed in principle on December 19, 2019.
José Neves, Farfetch founder, CEO and co-chair, said: “I am pleased to have Tencent and Dragoneer as part of the Farfetch investor base. Tencent’s deep technology expertise and ongoing relationship with Farfetch, paired with Dragoneer’s expertise in supporting growth-oriented technology companies, makes both investors outstanding partners to support Farfetch’s next chapter of growth. As we continue to execute on our long-term strategy, we believe that this investment supports Farfetch in delivering on the significant opportunity we see and scaling our business to achieve profitability in the medium term.”
Martin Lau, president of Tencent, said: “We are excited to build on our cooperation with Farfetch and support the company as it accelerates its growth in China and enhances its customer experience and offerings in the region. Tencent looks forward to supporting Farfetch’s mission to be a global technology platform for luxury fashion, and especially where we can support its efforts in China.”
Marc Stad, founder and managing partner of Dragoneer Investment Group, said: “We are delighted to have the opportunity to invest in Farfetch at this stage in the company’s growth story. Under José’s leadership, Farfetch has established itself as the leading global technology platform for luxury fashion, capturing market share and delivering a unique service to its growing customer base and its community of brands and boutiques. We look forward to the company’s continued execution on its strategic vision to take the business to the next level.”
Photo courtesy Farfetch