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Private Equity Firms Seize on IPO Boom With Consumer Assets

From Bloomberg:

Private equity firms are refusing to be left out of the initial public offering boom.

With technology IPOs sometimes doubling on day one, buyout shops are hoping to capture some of the buzz for their less sexy, slower growth and higher leverage assets. Two private equity-backed companies went public on U.S. exchanges this week, with two more filings on Friday for listings.

Apria Inc., owned by Blackstone Group Inc. since 2008, submitted its filing to the U.S. Securities and Exchange Commission, showing modest gains in profitability last year. The Indianapolis-based company provides home medical equipment, such as oxygen machines.

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Minutes after Apria’s filing, PurposeBuilt Brands Inc., whose biggest backers are Carlyle Group Inc. and TA Associates, filed for a listing. It owns cleaning product brands such as Weiman and Green Gobbler.

Both companies listed the size of their offerings as $100 million, placeholders that will likely change.

Assets that might otherwise receive a lukewarm welcome from investors could get a boost from the enthusiasm that has carried over from last year’s record of more than $179 billion in IPOs on U.S. exchanges. Excluding special purpose acquisition companies, January’s 11 IPOs are up 68.6% on a weighted average basis, with only one trading below its offer price, according to data compiled by Bloomberg.

“The IPO pipeline, in particular, is quite robust,” said Chris Malik, managing director at KeyBanc Capital Markets. “Financial sponsors will continue to monetize longstanding investments based on strong valuations for public companies.”

Petco Debut

Petco Health & Wellness Co., backed by CVC Capital Partners and Canada Pension Plan Investment Board, rose 63% in its trading debut Thursday. The pet-oriented retailer, still controlled by those investors, said it will use the $994 million in IPO proceeds to pay down debt.

Unlike technology or venture capital-backed enterprises, these companies, often a portfolio of brands assembled by the buyout firms, tend to change hands from sponsor to sponsor and have a longer history. The company or its sponsors also tend to bolt on acquisitions to fuel growth, a maneuver that almost inevitably adds debt as well.

CVC and CPPIB had acquired Petco for $4.6 billion from TPG and Leonard Green in 2016, a decade after those two firms took Petco private.

Debt Reduction

“The use of proceeds will be fully to pay down debt and what that means is that we can cut our interest payments by half,” Petco Chief Executive Officer Ron Coughlin said in an interview. “Which allows us to do two things — one is invest more in the business and secondly we will be net income positive.”

Roark Capital’s Driven Brands Holdings Inc., a car services provider, rose 21% in its trading debut Friday.

One motive for going public was paying for a recent acquisition. Driven Brands plans to use proceeds from the IPO to pay down debt from the purchase of a car wash business in 2019.

(Update with quote in graph seven.)