9 companies went public this week, raising $2 billion in the IPO market as year-to-date issuance surpassed 250 IPOs, almost 25% more than at this point last year. 3 large PE-backed deals, including two LBOs, each traded up over 10% and represented 79% of proceeds, while the 4 smallest companies by market cap had the lowest returns. Even with the S&P 500 near all-time highs, investors remain discerning as 5 of the 9 priced below the range, in line with most IPOs in the 2H14.
Axalta Group was the year's second largest LBO to go public after Carlyle sold additional shares to raise $975 million. Anemia biotech FibroGen became the year's largest biotech IPO by market cap ($1.2 billion) and gained 22%. Airline Virgin America flew up 30% on its first day to be the week's best performer and power producer Sky Solar Holdings came in a close second after being delayed last week.
Virgin America achieves liftoff; up 30% on first day
Virgin America positions itself as a more comfortable alternative to other low cost carriers, while keeping costs in check by leasing 100% of a fleet of modern aircraft that mainly fly out of San Francisco and Los Angeles. With an award-winning brand, Virgin hopes to pick up new customers as it adds routes to Dallas and expands its fleet. Virgin America had been one of the few remaining major airlines to be privately held, and it looks like it couldn't have picked a better time to go public - airline stocks have made impressive gains this year and earnings have soared due to lower fuel and leasing costs. The IPO priced above the midpoint to raise $307 million at a market cap of $1.0 billion, and gained 34% on its Friday debut.
LBOs from Carlyle and KKR trade up 12-13%
Carlyle Group sold 11% more shares of Axalta Coating Systems than originally proposed, raising $975 million at a $4.7 billion market cap ($8.2 billion enterprise value). The auto paint maker represented a profitable exit for Caryle, which bought the company in February 2013 for $4.9 billion. Only 21% of 2014 LBOs have managed to price at the midpoint or above, and that initial demand followed up with a 13% gain. Despite its high leverage, investors may have been drawn to a strong cash flow story and its leading market position in core businesses, including the #1 supplier to body shops. Axalta's successful IPO could encourage two more LBO'd auto IPOs to set terms as well (MPG) and (ATD).
Backed by KKR, contract research organization (CRO) PRA Health (PRAH) traded up 12% after pricing below the range. With a $306 million deal size, it raised about twice as much as last week's global CRO, close competitor INC Research (INCR, up 20%). KKR bought PRA Health just over one year ago and combined it with another large-scale CRO it acquired that had more ties to large pharmas, hoping this wider customer base can drive growth in a rapidly growing CRO market. Like Axalta, PRA Health is also highly levered post-IPO.
Year's largest biotech FibroGen trades up 22%
FibroGen (FGEN)'s $145 million IPO is the second largest of the year for a biotech, and its $1.2 billion market cap makes it the largest biotech since Intrexon (XON) in August 2013. The company's oral anemia drug, currently in Phase 3 trials, could replace the injectable standard of care treatment, which booked over $8 billion in 2013 sales. FibroGen is funded largely from AstraZeneca and Astellas, both primary shareholders. March IPO Akebia (AKBA) is developing a similar treatment for anemia, though the biotech recently dropped after reporting a high rate of serious adverse effects.
The biggest cautionary sign to the deal was close peer Akebia’s recent selloff after it reported Phase 2b data for anemia in CKD therapy that had a high rate of serious adverse events, including one death. That said, biotechs in general continue to outperform.
Sky Solar reaches the skies; up 30% after delaying IPO
After delaying its plans to go public last week, Sky Solar Holdings (SKYS) came back with a slashed range (midpoint cut 32%) and its bookrunners removed (co-manager Roth Capital stepped up), but traded up 30% by end of day Friday. In addition to its steep discount, Sky Solar has long-term power agreements and potential inroads to China and other developing markets.
Small biotech and chiropractic network slash valuations
NeuroDerm (NDRM), which is developing a controlled release treatment for Parkinson's Disease, was the week's worst performer with an 8% loss after cutting its price 31%. Despite the acquisition of close peer Civitas Therapeutics for $525 million in September, investors may have been turned off by the company's potential need for additional financing and the treatment's required belt pumps and daily injections. Chiropractic clinic franchisor The Joint (JYNT) slashed its valuation by even more, raising only $20 million with a 4%gain.
Two MLPs trade flat or down
The fourth quarter's high volume of MLPs continues this week with two very small IPOs, a departure from the mega midstream asset offerings of Antero (AM) and Shell (SHLX). Landmark Infrastructure Partners LP (LMRK), an MLP with property interest underlying cell towers, wireless sites and billboards, ended the week at its IPO price. Navios Maritime Midstream Partners LP (NAP) was the year's fourth shipping IPO, and the first to own oil tankers. Its discounted valuation gives it an attractive yield though the company has a small fleet and may have looked expensive on earnings.
Chinese car rental company eHi Car Services (EHIC) pushed its deal back to next week while female sexual dysfunction biotech S1 Biopharma (SXB) postponed its $36 million IPO.
| IPO pricings (week of November 10, 2014) | |||||
| Company (Ticker) | Business | Deal Size ($mm) | IPO Price vs. Midpoint | First-day pop | Return as of 11/14 |
| Virgin America (VA) | Virgin Group low-cost carrier | $307 | 2% | 30% | 30% |
| Sky Solar Holdings (SKYS) |
Solar asset/power producer | $44 | -27% | 14% | 30% |
| FibroGen (FGEN) | Biotech: Anemia, fibrosis | $146 | 3% | 22% | 22% |
| Axalta Coating Systems (AXTA) |
Auto paint for body shops | $975 | 0% | 6% | 13% |
| PRA Health Sciences (PRAH) | Contract research organization | $306 | -16% | 9% | 12% |
| The Joint (JYNT) | Chiropractic clinic franchisor | $20 | -35% | 1% | 4% |
| Landmark Infrastructure Partners LP (LMRK) |
MLP: Cell towers, billboards | $50 | -5% | 0% | 0% |
| Navios Maritime Midstream LP (NAP) |
MLP: Crude oil tankers | $122 | -25% | -8% | -5% |
| NeuroDerm (NDRM) | Biotech: Parkinson's Disease | $45 | -31% | -8% | -8% |
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IPO Market snapshot
So far this year, 252 IPOs have raised about $79 billion, averaging a first-day pop of 12.6%. The Renaissance IPO Index, a market cap weighted basket of newly public companies designed to represent the US IPO market, has gained 9.4% 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).
10 deals are on the IPO calendar to raise $4.2 billion, the IPO market's largest equity raise so far this quarter. Given that IPOs are less likely to price or set terms during the week of Thanksgiving, these 9 should precede a two-week slowdown in the IPO market. Two large REITs lead the pack - Paramount Group (PGRE; $2.3 billion deal size) and STORE Capital (STOR; $495 million). The week should also see the world's largest generic pesticide maker, Adama (ADAM), the year's third mega e-commerce company, Cnova (CNV), and the fast growing fast casual burger chain Habit Restaurants (HABT).
