An unprecedented trend of following the initial public offering (IPO) route to reduce huge debt burden is currently in vogue in diverse firms across the spectrum. The latest to join this bandwagon is Anheuser-Busch InBev SA/NV BUD. This brewing company aims to raise capital to the tune of $9.8 billion by listing its Asia business division – Budweiser Brewing Company APAC – in Hong Kong this year.
If Anheuser-Busch is successful in reaching its target, it is likely to be the biggest IPO of this year, surpassing Uber Technologies, Inc. UBER, which raised $8.1 billion in May. The company is expected to utilize the capital infusion to lower its huge debt that swelled to $105.6 billion as of Dec 31, 2018. Much of this debt was accumulated by the acquisition spree of the company, the most recent of which included the blockbuster purchase of rival SABMiller. Although management has hinted that the Asia listing is intended to strengthen its regional presence and provide Anheuser-Busch with more firepower to acquire local firms, the dry powder will surely boost its balance sheet position and improve liquidity.
More to Chew Upon!
Anheuser-Busch is apparently following the footsteps of PetSmart Inc. – a specialty pet retailer. In 2017, PetSmart acquired the fast-growing pet food e-commerce site Chewy.com for $3.35 billion to supplement its brick-and-mortar retail stores. The transaction was the biggest e-commerce acquisition of its time, significantly escalating the debt burden of the company. To add to the woes, it faced stiff competition from various startup and established firms like Walmart Inc. WMT and Amazon.com, Inc. AMZN, leading to intense price wars.
In order to tide over the storm, the company filed for an IPO of its online pet business in April 2019 and subsequently began trading as Chewy, Inc. CHWY from June this year. PetSmart reportedly utilized about $1 billion IPO proceeds to reduce its debt. This, in turn, enabled S&P Global to upgrade its credit rating to "B-" from "CCC," portraying renewed optimism on its performance, resulting in positive free operating cash flow and modest deleveraging.
Banking on Healthcare
Another example where IPO has been the preferred tool to pay off existing debts is Change Healthcare Inc. CHNG. This Tennessee-based healthcare analytics company filed for an IPO in March 2019 to pay down more than $5 billion debt load. Since its inception in 2017, Change Healthcare has achieved significant growth with a customer base of 900,000 physicians, 118,000 dentists, 600 laboratories, 33,000 pharmacies and 5,500 hospitals, making it one of the largest healthcare IT companies in the country providing network analytics.
The company accumulated large debt piles owing to its acquisition binge and high payroll costs with about 14,000 employees. Change Healthcare supposedly raised $609 million from the stock sale and an additional $279 million from the sale of tangible equity units. Leveraging industry-leading data and analytics-driven solutions along with innovations in AI, ML and robotic process automation to improve clinical, financial and patient engagement outcomes, the company remains poised to broaden its scale of operations. A healthy balance sheet position with optimum debt levels is surely going to help the company reach its objective in the future.
Raise a toast to the capital increase!
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