Four IPOs raised $1.2 billion during the past week, the third week in a row with five or less. Year-to-date, the IPO market has seen 235 initial public offerings raise $75 billion. The week's energy, health care, finance and consumer IPOs saw moderate returns, led by the year's largest and best-performing MLP, Shell Midstream Partners LP, which upsized its $920 million offering and gained 47%. Asset manager Fifth Street came back at a lower valuation but had the fifth-worst first-day performance of 2014, while positive returns from breast implant seller Sientra and western apparel retailer Boot Barn provide evidence of a healthy market.
The VIX volatility index continued its descent, falling 13% to an October low of 14.03 as the S&P 500 gained 3%. Eleven companies set terms this week, surpassing the nine that joined the IPO calendar last week as IPOs on file move quickly to take advantage of a more receptive IPO market.
Shell does well: largest MLP of 2014 soars 47%
Spun out Royal Dutch Shell ($230 billion market cap), Shell Midstream Partners LP (SHLX) became the year's largest MLP when it increased its deal size by 23% and raised $920 million. It is the largest MLP to IPO since last year's $2.8 billion offering of Plains GP Holdings LP (PAGP). Investors have been willing to pay up for growth MLPs with reliable yield and a clean balance sheet from well-known issuers. Shell Midstream's Gulf Coast pipelines must have had those qualities as the stock's yield was driven down by a 46% first-day pop, the highest of any MLP this year.
Fifth Street busts: Fifth worst debut of 2014
Fifth Street Asset Management (FSAM) had originally planned to raise $200 million during the prior week, but delayed its offering and came back on Wednesday with a $102 million IPO. Although the company slashed its market cap by 32% (increasing yield by over 200 bps) amid more favorable market conditions, investors still appeared to reject the asset manager's forecasted AUM growth and fifth street had the fifth worst first-day loss of the year. That level of performance is unusual for a finance IPO, especially one with a yield; in the last fourteen years, only two finance IPOs have had lower drops on the first day - October's Malaysian epayment provider MOL Global (MOLG) and last year's microcap apartment-focused REIT Trade Street (TSRE).
"Bust IPO" booms: breast implant maker up 18%
Sientra (SIEN), the newest of three major US breast implant makers, rose 18% after raising $75 million on Tuesday. Investors may have been attracted to its growth (+22% to $22 million in the 1H14), assuming Sientra can take market share from incumbents Johnson & Johnson and Allergan. Backed by OrbiMed, Clarus Ventures, Abingworth and Goldman Sachs, Sientra was the first of the three to offer anatomically shaped implants and claims its products are superior by safety and strength, meaning investors could have bought into an expansion story that has it staying ahead of the curve in terms of quality or innovation.
Das Boot IPO: Boot Barn boots it home
Boot Barn (BOOT), the largest retailer focused on western and work-related apparel with 158 US stores, priced at the high end and gained 11% by Friday. While Boot Barn did not fly up like Freeman Spogli's other 2014 consumer IPO, El Pollo Loco (LOCO), it had a better debut than the last PE-backed clothing retailer, Sportsman's Warehouse (SPWH; down 26% from its April IPO).
| IPO pricings (week of October 27, 2014) | |||||
| Company (Ticker) | Business | Deal Size ($mm) | IPO Price vs. Midpoint | First-day pop | Return as of 10/31 |
| Shell Midstream Partners LP (SHLX) |
Shell MLP owning pipelines | $920 | 15% | 46% | 47% |
| Sientra (SIEN) | Breast implant seller | $75 | 0% | 12% | 18% |
| Boot Barn Holdings (BOOT) | Western apparel retailer | $93 | 7% | 9% | 11% |
| Fifth Street Asset Management (FSAM) | Credit-focused asset manager | $102 | -32% | -21% | -14% |
IPO Market snapshot
So far this year, 235 IPOs have raised about $75 billion, averaging a first-day pop of 13% and 1% in post-IPO follow-through. The Renaissance IPO Index, a market cap weighted basket of newly public companies designed to represent the US IPO market, has gained 6% year-to-date. Renaissance Capital's IPO ETF tracks the index, and its top holdings include Alibaba (BABA), Zoetis (ZTS), Twitter (TWTR), Workday (WDAY) and Hilton (HLT).
October Recap
October saw 28 deals raise $5.8 billion with an average first-day return of 5% plus another 6% in the aftermarket. 54% of deal flow occurred in the first 9 days before a market selloff threatened to derail the IPO market. 43% of IPOs priced below the range while 14% priced above. The month was two IPOs shy compared to October 2013, but rising market trends and an already-loaded calendar should make for an active November and December. Based on the active pipeline, we estimate that 2014 could see 280 IPOs raise nearly $85 billion.
October failed to have a single billion dollar IPO and instead Shell Midstream Partners LP was the month's largest, thanks to Fairmount Santrol (FMSA) cuttings its deal size by 60%. Atara Therapeutics' (ATRA) 73% gain made it the month's best-performing IPO, even after it priced below the range and broke issue on its debut. Fast-growing specialty pharmacy Diplomat (DPLO) came in second, up 65% from the offer price. The first Malaysian IPO in over a decade also had the worst first-day loss in the same time span as MOL Global fell 35% on the first day of trading and failed to recover.
Biotechs continued to go public, driving health care to account for 36% of the month's IPOs, while we also saw an uptick of financial and midstream energy MLPs but just one consumer deal. With just three technology IPOs, the sector remained in the doldrums at 11% of deal flow (compared to 20% in 2013). Fast growing home goods ecommerce site operator Wayfair (W) gained 30% on its first day but subsequently broke issue, while marketing automation SaaS company HubSpot (HUBS) traded up after its well-received offering.
