Kenvue IPO: corporate carve-outs provide rare payday for bankers

The deep freeze in the US listing market has sent a shiver through Wall Street. Prior to this week, companies had raised just $2.4bn through traditional IPOs this year, according to Dealogic. That is the lowest amount in 14 years.

For fee-starved bankers, one spot of warmth persists: corporate carve-outs. In a carve-out, the subsidiary is separated using a standard IPO sale, rather than first distributed to shareholders via a dividend. Three of the biggest IPO deals last year were carve-outs.

The trend continues. Kenvue, the consumer arm of healthcare colossus Johnson & Johnson, raised $3.8bn in an expanded offering this week. The deal, which values Kenvue at more than $41.5bn, is the biggest US listing since 2021.

Kenvue, owner of Tylenol painkillers and Listerine mouthwash, made about $1.5bn in net income on sales of $15bn on a pro forma basis in 2022. It has priced at a punchy valuation of 28.5 times trailing earnings. That compares to the 23 times on which J&J itself trades and the 20 and 25 times that consumer goods companies such as Reckitt Benckiser and Procter & Gamble command.

Profitable Kenvue will also carry a dividend yield of more than 3.6 per cent based on a planned quarterly payout of about 20 cents a share. J&J remains majority shareholder, with a 90 per cent interest, after the IPO. That creates a potential stock supply overhang. Future litigation is another risk. J&J will handle all talcum powder-related liabilities in the US and Canada but Kenvue may be subject to claims from elsewhere.

The performance of recent carve-outs is uneven. Out of the three main examples from last year, only Mobileye Global, Intel’s self-driving car unit, trades above its IPO price. Kenvue’s slow-growth but steady, cash-generative businesses offer some defensiveness. Given recently volatile equity markets, that should offer some comfort to potential buyers.