As markets open for the new year, a mega breakup that could shake up the consumer healthcare market is coming down the initial public offering (IPO) pipeline.
Johnson & Johnson (J&J) is moving forward to spin off its consumer healthcare unit, Kenvue, in what could be one of the biggest offerings for early 2023.
Kenvue filed with the Securities and Exchange Commission (SEC) on January 4. It has not yet announced a date for the launch but plans to list on the New York Stock Exchange (NYSE) under “KVUE.”
Kenvue did not disclose numbers regarding total units on offer or initial pricing, but its filing fee schedule states it aims to raise $100 million through the deal. This figure is likely to be a placeholder sum, and the deal could raise as much as $5 billion, according to Renaissance Capital.
The breakup of the New Jersey-based health titan may be a game changer for the sector. With a 135-year-old history, Johnson & Johnson's consumer health division boasts a long list of iconic brands from Band-Aid, Listerine, Nicorette, and Neutrogena. Once the IPO is complete, this division – rebranded as Kenvue – will be the world's largest pure-play consumer health company. It has seen strong sales during the pandemic, generating $14.5 billion in revenue in 2020, $15.1 billion in 2021, and $11.18 billion for the first three quarters of 2022.
Yet just because the conglomerate is letting Kenvue out into public markets doesn't mean it will relinquish parental control of its newly-formed subsidiary. J&J will hold on to at least 80.1% of the voting power of Kenvue shares post-spin-off.
J&J first announced it would split its consumer health and pharmaceutical selves in November 2021. Then in September last year, it revealed its new spinoff would be named Kenvue. (“Kenvue” is a combination of “ken,” a term commonly used in Scotland to mean knowledge, and “vue,” indicating perspective.)
Kenvue's filing comes on the tail of a dismal year for IPOs in 2022. Healthcare and adjacent sectors felt the pain acutely. Only 22 biotech IPOs reached completion last year (as opposed to 104 in 2021), while Q2 2022 was the slowest quarter for biotech deals in over five years.
Beyond the prevailing bearish mood in financial markets, there's a bullish case to be made for the healthcare sector through the medium term.
According to a Research and Markets report, the global consumer healthcare market is predicted to reach $933 billion in 2026 at a compound annual growth rate (CAGR) of 21.74%.
The COVID-19 pandemic triggered a transformation in healthcare. Beyond the demand for products like Johnson & Johnson's eponymous vaccine, the pandemic saw a surge in consumption of everyday consumer healthcare items.
For instance, the early stages of the pandemic saw consumers “pantry load” on sanitary items, over-the-counter drugs, and immunity-oriented supplements. This included a more than 40 percent year-over-year increase in sales of multivitamins, according to McKinsey data. Companies like Kenvue are uniquely positioned to deliver on rising demand for their products in this post-pandemic period as consumers take more precautions and preventive measures to safeguard their health.
Investors seeking exposure to a very profitable and well-trusted healthcare business spun from an industry veteran will likely be keen to jump in on this deal once it arrives.
This article was produced and syndicated by Wealth of Geeks.