Money transfer service Xoom (XOOM) surged 59% on Friday, ending 2013's first month and a half of US IPOs on a high note. Xoom's first-day pop is another positive data point, together with large money flows into equities, very low volatility and overall strong IPO returns, suggesting that the IPO calendar could build quickly as more companies file audited 2012 financials.
New IPO filing activity also picked up last week, as six companies, looking to raise over $1 billion in the aggregate, were added to the US IPO pipeline. The IPO market remained challenging, however, for smaller, niche deals. On Thursday, Orchid Island Capital (ORC) became the eighth consecutive mortgage REIT to fall on its first day, and two micro-cap diagnostics companies, AutoGenomics (AGMX) and Cancer Genetics (CGIX), pulled their deals.
Xoom has best first-day gain since October 2012
Xoom raised $101 million on Thursday after pricing above the range. Its 59% first-day gain was the largest since on-demand software company Workday (WDAY) popped 74% in October 2012, and the second largest since data software provider Splunk (SPLK) more than doubled in price (gaining 108%) in April 2012. Xoom provides online and mobile money transfer services to 776,000 customers, mostly immigrants in the US. Revenue increased 60% to $80 million in 2012, although the company remained unprofitable as it invested in growth. Sequoia is the largest shareholder, with an 18% post-IPO stake; other backers include New Enterprise Associates, T. Rowe Price and DAG Ventures. Barclays and Needham were the joint bookrunners on the deal.
Two small IPOs trade relatively flat
ConnectOne Bancorp (CNOB), a community bank serving Bergen County, NJ, and Orchid Island Capital, a mortgage REIT investing in Agency RMBS, completed small deals of $45 million and $34 million, respectively. ConnectOne specializes in an underserved market for loans of $1 million to $5 million to small- to mid-sized businesses, and it has grown assets at a rate of 22%. However, its geographic concentration, lack of a dividend and small size made it palatable to only a small group of investors. While it priced slightly above the midpoint of its proposed range, it gained a modest 4% in its first week of trading.
Orchid Island Capital currently has a $115 million portfolio, which is managed by Bimini Capital. Although Bimini once managed a $3.5 billion Agency RMBS portfolio, its array of housing-crash related issues, including two ongoing lawsuits, likely limited investors' interest in the deal, which finished the week down 3%.
Genetic testing companies postpone deals
AutoGenomics, a delayed deal from the previous week, and Cancer Genetics were the final companies on the IPO calendar entering last week, and both postponed their deals. Both companies were early stage, had substantial accumulated deficits and faced much larger competitors in the crowded testing market. They were also micro cap companies that had each initiated at least one prior IPO attempt. According to an underwriter, AutoGenomics has withdrawn its offering. Cancer Genetics has not officially withdrawn, but it will need to obtain external financing by the end of the month in order to continue operations.
With Presidents' Day resulting in a shortened week for the US financial markets and in light of the fact that all new issues with a December fiscal year end will now be required to file audited full year financials before pricing, the US IPO market is set to take a pause this week. However, new and updated filing activity suggests that the US IPO calendar could fill up quickly heading into March.
First software IPOs among six deals added to the US IPO pipeline
Last week was the most active thus far this year for initial IPO filings. The six new deals, including the first new software deals of the year, were just one shy of the seven deals added to the pipeline in all of January. Four of the six new deals added to the pipeline had previously submitted confidential filings, suggesting their deals could launch within the next three weeks. Two of the deals were previously part of our Private Company Backlog.
Marin Software (MRIN; $75 million deal size) offers a subscription-based digital ad platform that integrates search, display and social marketing. Revenue increased 72% to $43 million for the nine months ended September 30, 2012. Venture backers include Benchmark Capital Partners, DAG Ventures, Temasek Capital, Focus Ventures and Crosslink Ventures. Goldman Sachs, Deutsche Bank, UBS and Stifel Nicolaus Weisel were listed as joint bookrunning managers for this IPO.
Model N (MODN; $75 million) provides software-driven revenue management solutions to life science and technology customers, including Bristol Meyers Squibb, Johnson & Johnson, Merck, Dell and Nokia. Backers include Meritech Capital Partners and Accel Partners. J.P. Morgan and Deutsche Bank are serving as joint bookrunners.
Hannon Armstrong Sustainable Infrastructure Capital (HASI.RC; $100 million) is a structured REIT that provides financing for clean energy capital projects. BofA Merrill Lynch, UBS and Wells Fargo are underwriting the IPO.
On Friday, TPG and Bain-backed Quintiles Transnational (QTRN.RC) filed for a $600 million IPO. The largest provider of clinical trial services to pharmaceutical companies, Quintiles was the largest of three healthcare companies to enter the pipeline. TPG and Bain acquired their stakes (currently 23% each) for $3.5 billion from One Equity Partners in 2008. The company booked $4.9 billion in sales in 2012. Morgan Stanley, Barclays and J.P. Morgan are the joint bookrunners on the IPO.
Tetraphase Pharmaceuticals (TTPH; $86 million) is a biotech creating antibiotics for life-threatening, multi-drug resistant infections and is backed by Flagship Ventures, CMEA Ventures, Skyline Venture Partners, FMR (Fidelity) and Mediphase Venture Partners. Barclays and BMO Capital Markets are serving as joint bookrunners on the deal.
The final initial filing of the week came from Sophiris Bio (SPHS; $75 million), a pre-revenue company developing treatments for urological diseases. It is backed by Warburg Pincus (52% pre-IPO stake) and BC Advantage Funds (12%). Citi and Leerink Swann are acting as joint bookrunning managers.
Seven other companies updated filings last week. Taylor Morrison Home Corporation (TMHC), one of America's top ten homebuilders, doubled its proposed deal size to $500 million. Blackstone-backed SeaWord Entertainment (SEAS) chose the NYSE for its listing. Silver Spring Networks (SSNI), which delivers hardware, software and services to improve power grid efficiency, and Artisan Partners Asset Management (APAM), an independent investment manager, both reported full year 2012 financials.
US IPO pipeline expands for the first time in weeks
The full IPO pipeline contains 110 companies looking to raise $31.2 billion. However, most of the flings are stale: 66 of the companies (60%) have either not released filings in the past six months or have postponed. A more promising group of companies that have released updates in the past month (excluding postponed deals) includes 23 deals seeking $6.7 billion of proceeds.
US IPO market performance update
Xoom's hot start kept recent IPO performance metrics looking strong. The average return for IPOs from the past 90 days is 25%, and the average aftermarket return is 10%. Xoom was the 20th IPO of 2013 and pushed total proceeds for the year to $5.5 billion. The average total return for the year is 18%, and the average aftermarket return is 5%.
