Chemist Warehouse is taking a step closer to an initial public offering (IPO) in what could be the hottest float on the ASX in years.
Even investors who aren't keen on participating should take note. The health of any bull market can be often be measured by the IPO market.
On that front, Chemist Warehouse is creating a buzz. The Australian Financial Review reported that it is preparing to send out a formal request for proposal to investment banks.
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Chemist Warehouse could be the hottest ASX IPO in 2021
Interest is expected to be high given that the potential debutant is our country's largest pharmacy chain with a turnover estimated at $5 billion.
The fees generated from the float for the lucky chosen investment bankers will be very substantial.
But investment bankers will have their work cut out for them. The ownership structure of the privately held Chemist Warehouse is messy even though current equity holders have undertaken a clean-up to prepare for the IPO.
Biggest ASX IPO since Medibank Private?
Investment banks will still need to put on their thinking caps to recommend how best to structure Chemist Warehouse for life as a public company.
It's too early to tell what IPO price the pharmacy giant will fetch, but the AFR suggested it could be north of $5 billion.
Of course, that doesn't say much. I believe an IPO candidate like Chemist Warehouse would list with a market cap multiple of more than one times its annual revenue. Of course, I am assuming it is profitable with only a modest amount of debt.
Assuming the valuation is above $5 billion, Chemist Warehouse could become the biggest ASX float since Medibank Private Ltd (ASX: MPL) in 2014.
Key question facing would be investors
The real question then is at what multiple can Chemist Warehouse attain? While it's a household name and the industry leader by miles, investment banks handling the bookbuild will need to show the group still has multiple growth levers.
It's a little harder to see where future growth will come from outside of organic growth in the sector. It could look overseas, but many Australian companies don't have a good track record on this front.
According to IBIS World, My Chemist Retail Group (which owns Chemist Warehouse) commands 21.1% of the Australian market. That's well ahead of other ASX-listed peers.
Sigma Healthcare Ltd (ASX: SIG) is the second largest at 16.8% of the market, while Australian Pharmaceutical Industries Ltd (ASX: API) holds 8.6%.
Chemist Warehouse was founded by Jack Gance and Mario Verrocchi. They started the company in 1995 with five outlets. This has grown to more than 300 stores employing 9,500 staff across the country today.
