The rush by more than 30 ASX shares to tap the market for capital back in March and April was arguably an opportunistic bid to fortify their balance sheets, while 'emergency measures' allowed them to raise up to 25% of their share base in discounted placements.
In April alone, ASX companies raised a whopping $8.9 billion, which, to put in context, was close to that raised in the US, a market which is 28 times bigger.
Fast forward 3 months and many of the funds raised to help ride out the worst of the COVID-19 storm have morphed into sizeable war chests with which to hunt for attractively priced assets.
Here are 3 ASX shares to watch in this space. All 3 went to market to raise capital earlier this year and are sufficiently cashed-up to start picking off some mouth-watering acquisitions at discounted prices.
National Australia Bank Ltd. (ASX: NAB)
Responsible for the largest capital raising back in April, NAB managed to raise $3.5 billion from predominantly institutional investors and is expected to use it to acquire quality assets. While NAB is no stranger to acquisitions, in my view it has made some horrendously bad ones over the past 35 years, including the biggest doozy of them all, the fated Clydesdale Bank in the UK.
With those blunders etched into the annals of Australia's corporate history, NAB's future growth-by-acquisition strategy is a much more calculated and local affair.
The bank has worked hard to throw off its former moniker as Australia's most accident-prone bank, and an eventual sale of its wealth unit, MLC will help to shore up its balance sheet even more. I expect future acquisitions by NAB to further consolidate its position as the more business-focused of the big four major banks.
Webjet Limited (ASX: WEB)
Having been hit hard by the COVID-led shutdowns, the travel group raised $231 million in an April placement at a 55% discount to its closing share price. Then earlier this month it started raising €100 million via a convertible note.
While the first rising was very much about shoring up the balance to get the company though a bleak 2021, capital raising number 2 is all about engaging in acquisitions. Following the second raising, Webjet CEO John Guscic was quick to reassure the market that the net effect is not designed to 'screw over shareholders', at the betterment of institutional investors.
He's also on record as signalling that post-COVID-19 presents some eye-opening buying opportunities. While Guscic has not flagged any specific potential acquisitions to the market, I think the potential to pick off quality assets at discounted prices bodes well for shareholders.
After some heavy cost cutting in April, Webjet's cash burn is currently running at around $15 million a month. As of 31 May it had liquidity of $307 million, including $215 million in cash. Given the nature of Webjet's former acquisitions, I suspect it will start to deploy its firepower to do more M&A deals with offshore counterparts, particularly in Asia. Reporting season may see the online travel group disclose more detail here, so pay close attention to the commentary that supports the numbers.
Telstra Corporation Ltd (ASX: TLS)
After shoring up €500 million in a (bond issue) borrowing spree, and assuring a further $940 million in bank facilities since mid-March, Australia's biggest telco's committed bank facilities stand at a total of $3.6 billion. Telstra made some tough decisions during the coronavirus pandemic, including massive layoffs and stand-downs, but appears to have emerged a leaner and much more robust version of itself.
The company also seized the opportunity to bring forward $500 million worth of capex from the 2H FY21 into CY 2020. It also has plans to deploy a similar amount to increase the capacity in its network. This is likely to include a further acceleration of its 5G rollout.
To its credit, Telstra had placed its current outlook within the range of its FY20 guidance, which will be looked at favourably by the market. Despite having slipped into what could have been takeover territory when the price slumped to around $2.60 late June 2018, the telco now looks a lot more like an acquirer going forward.
Success with previous acquisitions has seen Telstra consolidate a string of companies – including VMTech, MSC, Readify, and Kloud – into a single brand dubbed Telstra Purple, which is now Australia's largest technology services business.
While much of Telstra's focus is on its dominant position in the 5G space, one area that I think is ripe for future investment is its Telstra Ventures division. This is the telco's high growth venture capital portfolio of investments, which has actively invested in a broad range of leading technology businesses. These include digital storage options DocuSign and Box, a holding in Snapchat and a particular focus on cyber security via AttackIQ.
