US IPO Recap: Ten deals price, highest weekly total since 2010

Deal flow picked up from already high levels, but returns were light in a ten-IPO week, just the second since 2007. Half of the week’s deals were from financial companies, while the largest was a $947 million offering from Quintiles Transnational (Q), a service provider for biopharmaceutical companies. Activity is poised to continue with seven newly scheduled deals, including a trio of fast-growing technology companies. After just a week and a half, May’s 15 pricings are already the highest monthly total since October. With ten IPOs on the calendar, the final monthly total could exceed 20 for the first time in more than five years.

IPO pricings (week of May 6, 2013)

Company	Business	Deal Size ($mm)	Price vs. Midpoint	Return
American Residential Properties (ARPI)	Residential REIT	$288	-4.5%	0.0%
Armada Hoffler Properties (AHH)	Commercial REIT	$190	-4.2%	0.9%
BioAmber (BIOA-U)	Renewable chemicals	$80	-37.5%	-16.0%
Cyan (CYNI)	Networking solutions	$88	0.0%	1.0%
Emerge Energy Services LP (EMES)	Frac sand producer	$128	-15.0%	-1.8%
First NBC Bank (NBCB)	New Orleans bank	$100	0.0%	2.1%
PennyMac Financial Services (PFSI)	Mortgage loans	$200	0.0%	8.9%
Quintiles Transnational (Q)	Biopharma CRO	$947	5.3%	6.0%
Receptos (RCPT)	Early-stage biotech	$73	-6.7%	1.4%
TriState Capital (TSC)	Northeast bank	$66	0.0%	10.0%

In the third largest IPO of the year, Quintiles Transnational priced at $40, the high end of the range. The contract research organization, which is backed by private equity firms TPG, Bain and 3i, is the leader in a $29 billion market, and its sales rose 12% to $3.7 billion in 2012. The stock gained 6% last week. TriState Capital (TSC), a branchless bank serving middle market businesses in the northeastern US, had the best return of the week, gaining 10% after pricing at the midpoint. Reflecting the week’s overall mediocre returns, the gain was only the 11th best of the quarter.

IPO setting terms (week of May 6, 2013)

Company	Business	Deal Size ($mm)	LTM Sales ($mm)
ChannelAdvisor (ECOM)	E-commerce software	$75	$56
Marketo (MKTO)	Marketing software	$73	$66
Portola Pharmaceuticals (PTLA)	Late-stage biotech	$100	$72
RCS Capital (RCAP)	Financial services	$55	$470
Tableau Software (DATA)	Data visualization software	$176	$143
Tallgrass Energy Partners (TEP)	Midstream energy assets	$287	$256
William Lyon Homes (WLH)	Western US homebuilder	$200	$435

Three software companies, two of which are growing faster than 80%, set terms last week. Tableau Software (DATA), which offers data visualization software, doubled sales last year to $128 million and now has more than 10,000 customers in 100 countries. Marketo (MKTO), a marketing software provider, has a rapidly expanding subscription service (98% CAGR since 2010) that has attracted enterprises such as GE, Fox and Panasonic. William Lyon Homes (WLH), a formerly public western US homebuilder, could be the third homebuilder IPO of 2013; the previous two, TRI Pointe Homes (TPH) and Taylor Morrison (TMHC), have both gained more than 10%.

New IPO filers (week of May 6, 2013)

Company	Business	Deal Size ($mm)	LTM Sales ($mm)
Frank's International (FI)	Oil and gas services	$500	$1,056
Heat Biologics (HEAX)	Early-stage biotech	$20	n/a
QEP Midstream Partners (QEPM)	Midstream energy assets	$400	$161
Sprouts Farmers Market (SFM)	Organic grocer	$300	$1,795

Of the four new IPO filers last week, three hope to complete fairly large deals of $300 million or more (the YTD median deal size is $128 million). Frank’s International (FI), a oil and gas services provider based in Amsterdam, has bounced back from a sharp downturn during the recession (including a 29% decline in sales in 2009) with 32% annual top-line growth since 2010.  The 75-year old company has relationships with most of the world’s top oil companies, including ExxonMobil, Chevron and Shell. Another energy company, QEP Midstream Partners (QEPM), was formed by QEP Resources (QEP) to own midstream oil and gas assets. Sprouts Farmers Market (SFM), an Apollo-backed natural and organic grocer operating, has 157 stores in the southwestern US. Heat Biologics (HEAX) is a biotech developing vaccines for cancers and infectious diseases.

Weak first-day pops in May

For the first time this year, the recent IPO return average dipped below 10%. The 42 IPOs from the last 90 days have returned 9.7% on average (vs. 14.2% as of last week), brought down by the 1.3% average return of last week's deals. The average aftermarket return of 1.0% is down from 2.1% as of last week. First-day returns have been especially weak in May. While more than 40% of the year’s deals have popped by more than 10%, none did last week despite a large number of pricings, and the month’s 2.0% average pop is far below the 9.6% YTD average.