11 IPOs priced during the week of September 29, but only 3 had any meaningful gains, including two tech deals and American Addiction Centers, a network of substance abuse treatment centers. The group raised $2.4 billion; 25% less than expected after frac sand maker Fairmount Santrol cut its deal size 60% to just $400 million. Fairmount was one of five offerings with private equity backing, none of which traded up, as large and established cash-flow companies (as well as 3 biotechs) failed to gain traction among investors. Both technology IPOs, Wayfair and Yodlee, outperformed the group as each traded up over 10%.
The 11 IPOs averaged just 0.7%, raising some concerns for future deals, including the eight on next week's calendar. Companies appear to remain optimistic, as deals continue to both file and set terms at elevated levels.
Before we dive into this past week's deals, be sure to read the Renaissance Capital Quarterly Review: "3Q 2014 IPO Market All About BABA and Biotechs."
Substance abuse IPO leads the group, no intervention necessary
American Addiction Centers (AAC) was the week's best-performer, up 24% by Friday. The company operates six substance abuse treatment centers in the US with over 450 beds. Despite some concern over collection rates, investors may have had faith in the company's growth strategy; AAC has over 300 beds in the pipeline and has demonstrated some success in acquiring and developing facilities.
Technology pulls ahead, and then pulls back
The VIX volatility index fell 10% on Friday, but nobody told the two tech IPOs, as both traded up high and then lost initial gains. The fact that they ended the week over 10% compared to the rest could be a positive sign for next week's e-payment (MOLG) and SaaS (HUBS) IPOs, while suggesting the market is not losing its head over high-growth.
Wayfair (W) raised $319 million and gained 30% on its first day after pricing above the range, the first e-commerce IPO after Alibaba (BABA). In Friday trading, however, the stock tumbled 15%, ending the week up 11%. The online home goods company grew revenue 50% in the 1H14, achieving over $1 billion in LTM sales, and appears to be well-positioned in an underpenetrated and fragmented market. Yet investors may have been turned off by its unprofitability in the near-term as Wayfair ramps up marketing.
Yodlee (YDLE) priced at the midpoint and spiked over 50% during Friday intraday trading, but ended the day up 12%. The recently-profitable SaaS company provides a platform that powers apps for some of the largest US financial institutions, including Bank of America (BAC), a primary shareholder and its largest customer. The IPO market has not seen a cloud-based software company since May IPO Zendesk (ZEN), which gained 17% on Friday .
Week's largest deal ended flat
VWR (VWR) was the week's largest deal, raising $536 million after pricing below its range. LBO'd by Madison Dearborn in 2007 for $4 billion, VWR is among the largest distributors of chemicals and other general and specialty lab products. VWR has relatively low growth, stable cash flows and a straightforward plan delever post-IPO.
3 Energy IPOs run out of gas
Fairmount Santrol, the week's second-largest IPO, also finished its Friday debut at the offer price. The deal size dropped from $1 billion to $400 million after it priced the IPO 29% below the midpoint and PE backer American Securities nearly halved the number of shares it offered (deal was 100% insider). The frac sand company's market cap fell by about 30% (to $2.8 billion). Energy stocks have traded off recently and oil and gas prices continue to fall, though Fairmount's strong cash flow and established position in the industry could prevent the fracked IPO from being a sand trap.
JP Energy Partners LP (JPEP), which operates a diverse set of midstream energy assets, became one of only a few MLPs this year to drop below the offer price. After pricing at the midpoint, it fell 4% on its first day and recovered slightly by Friday. Last week's midstream MLP, CONE (CONE), traded up 38% on its first day, but investors may have been more skeptical of JP Energy's growth prospects as well as its ability to pay distributions given an unprofitable history with its various assets and high exposure to commodity prices.
Blackstone's Vivant Solar (VSLR) did not have a bright IPO, either. The company priced its $330 million IPO at the low end of the range and slid to -14% by week-end. Vivint, a fast-growing installer of residential solar energy systems, competes directly with Elon Musk's SolarCity (SCTY), one of the best peforming IPOs of 2012. However, the renewable energy company may have faced headwinds as SolarCity fell 13% over the last month.
Bain LBO drops the call; week's worst performer down 15%
Atento (ATTO) fell 14% on Thursday, giving it the year's second-worst first-day drop for an IPO with private equity backing (next to King Digital's 16% drop in March). It raised $150 million after pricing 27% below the midpoint at a market cap of $1.1 billion. The Latin American call center operator was carved out of Spanish telecom giant Telefónica in 2012 by Bain for $1.3 billion. Despite being a cash engine with leadership in Latin America, investors may have put the call center operator on hold due to poor trading among peers, dependence on its former parent and uncertainty over FX and the European economy.
Biotechs break
Three biotechs priced this week, and none did well. The week's smallest planned IPO, Eyegate Pharmaceuticals (EYEG), postponed.
Dermira (DERM) priced at the high end of the range, raising $125 million. The skin condition biotech is developing treatments for psoriasis, excessive sweating and acne. Insiders had skin in the game, so to speak, purchasing 12% of the deal. At a diluted market cap of $425 million, Dermira was the year's sixth-largest biotech (out of 59), and the only one in the top ten to end the first day negative. The five largest biotechs ahead of Dermira average a 98% return.
Calithera Biosciences (CALA) priced below its midpoint, raising $80 million ($188 million market cap). While its novel approach to inhibiting tumor metabolism could be used to treat several different types of cancer, the company remains very early-stage.
Vascular Biogenics (VBLT), an Israeli biotech developing gene therapies for cancer and small molecules for inflammation, priced a $40 million IPO on Tuesday. In a highly irregular move, the company originally priced its IPO at $12 per share on July 30, 2014, but the deal was nullified a week later after a major insider canceled a commitment to buy (shares had fallen 7%). The deal came back at just $6 per share, broke issue, and later traded up slightly.
| IPO pricings (week of September 29, 2014) | |||||
| Company (Ticker) | Business | Deal Size ($mm) | IPO Price vs. Midpoint | First Day | Return as of 10/3 |
| American Addiction Centers (AAC) |
Substance abuse treatment centers |
$75 |
15% |
23% | 24% |
| Yodlee (YDLE) |
SaaS platform for financial apps |
$75 | 0% | 12% | 12% |
| Wayfair (W) | Online retailer of home furnishings | $319 | 9% | 30% | 11% |
| Vascular Biogenics (VBLT) |
Biotech: cancer and inflammation |
$40 | -57% | -3% | 2% |
| VWR (VWR) | Madison Dearborn: chemicals and lab supplies |
$536 | -11% | 0% | 0% |
| Fairmount Santrol (FMSA) | American Securities: Sand for oil and gas E&Ps |
$400 | -29% | 0% | 0% |
| JP Energy Partners LP (JPEP) | Arclight: MLP with Midstream energy assets |
$275 | 0% | -4% | -2% |
| Dermira (DERM) |
Biotech: skin conditions |
$125 | 7% | -3% | -3% |
| Calithera Biosciences (CALA) | Biotech: inhibits tumor metabolism | $80 | -29% | -6% | -6% |
| Vivint Solar (VSLR) | Blackstone: Residential solar panels |
$330 | -6% | 0% | -14% |
| Atento (ATTO) | Bain: Latin America call centers |
$150 | -27% | -14% | -15% |
IPO market snapshot
So far this year, 215 IPOs have raised $70.6 billion and produced an average first day return of 13%. The Renaissance IPO ETF (symbol: IPO), a float cap-weighted basket of newly public companies and indicator of post-IPO performance, has gained 5.1% compared with 6.5% for the S&P 500. Over the last 30 days, the IPO ETF has fallen 2.2% compared with -1.6% for the S&P 500, suggesting that the IPO market will remain price-sensitive to new issuance. The active IPO pipeline includes 138 companies looking to raise a total of $28.7 billion.
