Five initial public offerings collectively raised $1.3 billion during the past week, bringing the year's total to 228 IPOs and $73.5 billion raised, a 35% increase over this time last year by deal count and an 84% increase by proceeds. The S&P 500 had the largest 3-day slide since 2011 while the VIX volatility index leapt above 25 and the IPO market responded with postponed deals, slashed valuations and average returns. Forward Pharma, the largest biotech IPO in over 10 years, fell 17% on its first day. Yet even as the energy sector took a beating, natural gas MLP Dominion Midstream Partners gained 32%. Thanks to a market rally on Friday, the five deals averaged 11% and the week's largest IPO, fiber optic network owner Zayo Group, had a strong 16% debut.
Yield IPO from Dominion dominates
Dominion Midstream Partners LP (DM) overcame concerns over low oil and gas prices amid the energy sector selloff, pricing at the high end of the range and gaining 26% on its first day and more in the aftermarket. The company operates a liquefied natural gas terminal off the coast of Maryland, and is being carved out of Dominion Resources (D). The last three midstream MLPs to go public (CNNX, JPEP, USDP) have had mixed trading, but Dominion Midstream appeared to have the right profile given the strength of its parent and plans for rapid distribution growth.
Fiber optic IPO Zayo cuts valuation and trades up
The week's largest IPO, Zayo Group (ZAYO), raised $400 million instead of the planned $650 million by lowering its price and shares offered. Helped by a more attractive valuation, significantly less insider selling (24% instead of 62%) and a market rally on Friday, Zayo gained 16% on the IPO. The company operates one of the largest fiber optic networks in the US, and the telecom giant has done so by making over 30 acquisitions in its 7-year history, including the $2.2 billion purchase of AboveNet in 2012. Despite potential concerns over high debt and significant stock-based compensation the deal's performance is a welcome boon to backers GTCR, Oak Investment Partners, M/C Partners, Columbia Capital, Charlesbank Capital and Battery Ventures.
Biotechs rejected
Four biotechs were on the IPO calendar to price this past week; only two made it through and the the other two broke issue on the first day. The last six biotechs have had negative first-day performance and eight of the last ten biotechs now trade below the IPO price, as investors feel less comfortable with these high-risk stocks.
Forward Pharma's (FWP) $221 million IPO raised 10% more than expected when it offered more shares and priced at the midpoint. However, the year's 60th biotech - the largest biotech IPO in over 10 years - fell 17% on its first day, giving it the 7th-largest first-day drop of 2014. The company later recovered somewhat as investors appeared to put some weight in the company winning an interference proceeding against Biogen Idec (BIIB) over patents and completing Phase 3 trials for its potentially lucrative MS drug. Atara Pharmaceuticals (ATRA), an early-stage biotech targeting muscle loss in patients with kidney disease, priced significantly below the range and broke issue on its IPO but made an impressive comeback on Friday, ending the week up 9%.
Xenon Pharmaceuticals (XENE), which licenses drugs to uniQure, Teva and Genentech for LPLD, pain and acne, postponed its $44 million IPO. Virobay (VBAY), which is developing a drug platform for pain and autoimmune diseases, also postponed its $50 million IPO. Both biotechs were fairly early stage. In addition, diabetes biotech Dance Biopharm (DNCE) withdrew a $75 million IPO during the week.
| IPO pricings (week of October 10, 2014) | |||||
| Company (Ticker) | Business | Deal Size ($mm) | IPO Price vs. Midpoint | First Day | Return as of 10/17 |
| Dominion Midstream Partners LP (DM) |
MLP with offshore LNG terminal |
$368 | 5% | 26% | 32% |
| Zayo Group (ZAYO) | Fiber optic bandwidth infrastructure |
$400 | -16% | 16% | 16% |
| Atara Biotherapeutics (ATRA) | Biotech: muscle loss from kidney failure | $351 | -27% | -3% | 9% |
| Great Western Bancorp (GWB) |
Midwestern bank; $9 billion of assets |
$288 | -20% | 0% | 2% |
| Forward Pharma (FWP) |
Developing a treatment for MS | $221 | 0% | -17% | -5% |
IPO market snapshot
So far this year, 228 IPOs have raised $73.5 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 0.1% compared with 2.1% for the S&P 500. Over the last 30 days, the IPO ETF has fallen 6.7% compared with 5.7% for the S&P 500, suggesting that the IPO market has become more discerning. The active IPO pipeline includes 139 companies looking to raise a total of $28.3 billion.
Next week, the IPO market should see 5 deals raise $456 million, including an electronic cigarette company.
