Last week’s IPOs were up an average of 32% while the S&P 500 gained only 1%. Technology and health care companies (especially biotechs) continue to be the most active sectors of the IPO market, and last week they represented 19 of the 23 to price, set terms or submit initial filings. The window is open for these companies, as tech and health care IPOs have returned about 25% more on average than the rest of the year’s IPOs (41% vs. 15%). But in what could be a sign of discipline in a reportedly frothy market, Globoforce (THNX) withdrew a planned IPO on Friday after cutting its deal size by 26%. The company's high customer concentration (GE was 31% of sales) may have turned off investors.
A week of strong returns for tech and biotech companies
Like the week before it, last week's public offerings were entirely technology and health care companies. The mix shifted toward more tech firms though, with four enterprise software providers and one data center optimizer completing deals. Paylocity (PCTY) was the week's first IPO and best performer as the human resources SaaS company rose 53%. Amber Road (AMBR) and Borderfree (BRDR) are software companies focused on supporting global operations, and both produced decent returns on Friday. Q2 Holdings (QTWO) enables regional banks to compete with the advanced mobile and web-based services provided by the nation's largest banks. A10 Networks' IPO was last week's largest, but produced a mediocre 8% return for Mitsui & Co. and several venture backers, which sold over a quarter of the deal. The company's network devices improve data center performance.
Versartis (VSAR) achieved a 49% gain on its first day of trading after raising 57% more than expected. It is developing an injection for growth hormone deficiency that patients would take once a month instead of every day. MediWound (MDWD), which produces a gel recently approved in Europe that removes charred tissue from severe burn victims, priced at the low end but traded well on its first and second days, gaining 30% for the week. While Akebia (AKBA) jumped 57% on its first day, it then fell 11% on Friday amid a dip in biotech stocks caused by a Congressional inquiry into Gilead’s pricing of a new drug. Akebia is developing a once-daily oral treatment for anemia.
| IPO pricings (week of March 17, 2014) | ||||
| Company (Ticker) | Business | Deal Size ($mm) | IPO Price vs. Midpoint | Return as of 3/21 |
| Paylocity (PCTY) | SaaS for payroll and HR management | $120 | 13% | 53% |
| Versartis (VSAR) | Biotech: growth hormone deficiency | $126 | 20% | 49% |
| Akebia Therapeutics (AKBA) | Biotech: once-daily oral drug for anemia | $100 | 10% | 39% |
| Amber Road (AMBR) | SaaS for global trade management | $96 | 13% | 31% |
| MediWound (MDWD) | Biotech: severe burns and grievous wounds | $70 | -7% | 30% |
| Borderfree (BRDR) | International e-commerce platform for US retailers | $80 | 7% | 25% |
| Q2 Holdings (QTWO) | Online banking for regional banks | $101 | 8% | 24% |
| A10 Networks (ATEN) | Devices that improve network performance | $188 | 7% | 8% |
CBS Outdoor hopes to be a billboard hit while more tech and health care companies set terms
CBS Outdoor Americas (CBSO), the spinoff of CBS's North and South American outdoor advertising division, set terms for a $540 million IPO, making it the largest deal this week, narrowly ahead of King Digital’s (KING) $500 million deal. The company generates most of its revenue by leasing advertisement space on billboards and plans to grow by upgrading some of its boards with LED screens. The Rubicon Project (RUBI) set terms for its closely watched IPO (launching in early April). The company runs the widest reaching digital ad marketplace in the US. Everyday Health (EVDY) has increased its reliance on advertising dollars since it first filed in 2010. The company operates a portfolio of wellness websites such as EverydayHealth.com and MedPageToday.com. This year’s other consumer Internet IPO, Care.com (CRCM), gained 69% during its first week of trading, but has since declined nearly to its IPO price.
Aerohive Networks (HIVE) mirrors last week’s A10 Networks in providing enterprises with enhanced networking solutions. Aerohive focuses on mobile device networks, an increasingly important IT concern as BYOD takes off in the US. 2U (TWOU) provides a cloud-based platform for non-profit universities to host online degree programs. Its IPO will follow that of another education company going public this week, Nord Anglia (NORD). A third education company, Tarena International (TEDU), provides software training for programs like Java and C++ and expects to price its IPO next week. Tarena could be the first US-listed Chinese IPO of 2014 and a precursor to the year's potential offerings from Weibo, JD.com and Alibaba.
| IPO terms filings (week of March 17, 2014) | |||
| Company (Ticker) | Business | Deal Size ($mm) | LTM Sales ($mm) |
| CBS Outdoor Americas (CBSO) | Spinoff of CBS outdoor advertising division | $540 | $1,294 |
| Tarena International (TEDU) | Chinese schools for IT services and software | $138 | $93 |
| 2U (TWOU) | Online degree programs at nonprofit universities | $110 | $83 |
| The Rubicon Project (RUBI) | Ad exchange with the largest reach in the US | $108 | $84 |
| Everyday Health (EVDY) | Publishes health and wellness media | $100 | $156 |
| Aerohive Networks (HIVE) | Cloud-based networking solutions | $75 | $107 |
| SCYNEXIS (SCYX) | Biotech: life-threatening fungal infections | $55 | $17 |
| Aldeyra Therapeutics (ALDX) | Biotech: rare skin and eye diseases | $25 | $0 |
| Signal Genetics (SGNL) | Develops and sells cancer diagnostics | $25 | $0 |
Another five health care companies prepare for an IPO
Five of the seven filers last week were health care companies. Looking to raise $115 million, Alder BioPharmaceuticals could have a larger IPO than Versartis. The company develops antibodies to prevent migraines and has partnered with Bristol-Myers Squibb to treat arthritis. Presbia (LENS) creates implantable lenses that treat presbyopia, the age-related loss of focus. Its filing follows the passing of a major regulatory hurdle by its peer, Staar Surgical (NASDAQ: STAA), which was given a recommendation for FDA approval of its own implantable lens for astigmatism. Agile Therapeutics (AGRX) hopes to offer a safer alternative to Johnson & Johnson's Ortho Evra contraceptive patch, and relies heavily on another IPO candidate that set terms this morning, Corium International (CORI), as its manufacturing partner.
Nordic American Offshore (NAO), which operates platform supply vessels for offshore oil drills, was spun off of Nordic American Tankers (NYSE: NAT) in October. It is the second IPO in the pipeline that operates in the marine energy transportation supply chain, along with Dorian LPG (LPG). A third marine energy transporter Diamond S Shipping, withdrew its IPO plans on March 12. ServisFirst Bancshares (SFBS) is the third regional bank in the pipeline (joining OPB and ABCW).
| IPO initial filings (week of March 17, 2014) | |||
| Company (Ticker) | Business | Deal Size ($mm) | LTM Sales ($mm) |
| Alder BioPharmaceuticals (ALDR) | Biotech: antibodies for migraines and arthritis | $115 | $19 |
| Nordic American Offshore (NAO) | Vessels that supply offshore drilling rigs | $115 | $1 |
| Presbia (LENS) | Surgically implanted lens to correct vision loss | $90 | $0 |
| ServisFirst Bancshares (SFBS) | 12 commercial banks in the southeast US | $72 | $122 |
| Agile Therapeutics (AGRX) | Biotech: prescription adhesive contraceptives | $69 | $0 |
| GlobeImmune (GBIM) | Biotech: pancreatic cancer and hepatitis B | $35 | $23 |
| Signal Genetics (SGNL) | Develops and sells cancer diagnostics | $25 | $0 |
IPO market snapshot
So far this year, 53 IPOs have raised $8.5 billion and produced an average first day return of 22%. The Renaissance IPO ETF (symbol: IPO), a cap-weighted basket of newly public companies and indicator of post-IPO performance, has gained 5% compared with 2% for the S&P 500. Over the last 30 days, the IPO ETF has risen 1% compared with 2% for the S&P 500, following the IPO market’s slight correction from early March's high levels. The active IPO pipeline includes 118 companies looking to raise a total of $34.3 billion.
