Every one of the 10 IPOs last week priced at a discount to its original midpoint, including 8 that priced below the range. Over the past two weeks, 80% of IPOs had an opening price below the midpoint, with an average discount of 9.1%. Up until that point, 41% of the year's IPOs had priced below their midpoint, with an average discount of 3.4%. Based on the number of IPOs that were completed, we see that investor demand is present, but the year's poor aftermarket returns (-3%) have likely caused investors to require lower initial valuations. The Renaissance IPO ETF (symbol: IPO), a cap-weighted basket of newly public companies and indicator of post-IPO performance, points to better IPO market sentiment as the ETF experienced its first positive week since the first week of March. Even though only two companies launched during the holiday week, the eight new filers suggest that companies share that optimism and that the year's strong pace may not slow down.
Weibo rises as every IPO last week priced below its midpoint
Last week saw 10 of the originally scheduled 11 IPOs price. The eight that priced below the range produced lackluster average returns of 4%. The two that priced at the low end of the range (both Chinese companies) rose 19%. Weibo (WB), the year's third Chinese IPO (and the largest since Renren in 2011), is China's largest microblogging service and is often compared to Twitter. Its offering bodes well for Alibaba, which owns 32% of the company and is expected to soon file for its own US IPO. Leju Holdings (LEJU) also gained 19%; its online-to-offline services help users find real estate and receive discounts. Tencent owns 16% of the company, highlighting the rivalry between it and Alibaba, two of China's largest internet companies.
With just one biotech last week, this month's IPOs continue to diversify from last quarter's dominant industry. Tech continues to make a strong showing, while the financial sector has picked up. Two LBO’d companies, Sabre (SABR) and Sportsman's Warehouse (SPWH), debuted on Friday but only gained 3%, closing under the low end of their proposed ranges. Paycom also had that distinction, trading at a notable discount to peer Paylocity (PCTY) despite its superior margins. Paylocity's 19% decline since its March IPO could have led to the conservative valuation. Moelis & Company, an independent investment bank and financial advisor led by Ken Moelis, just barely stayed within its range as it rose 4%. Trivascular Technologies (TRIV) priced below its range, but gained 19% a week after another stent maker, Lombard Medical, postponed its IPO.
| IPO pricings (week of April 14, 2014) | ||||
| Company (Ticker) | Business | Deal Size ($mm) | IPO Price vs. Midpoint | Return as of 4/18 |
| TriVascular Technologies (TRIV) | Low-profile stent grafts | $78 | -14% | 19% |
| Weibo (WB) | China's largest microblogging service | $286 | -6% | 19% |
| Leju Holdings (LEJU) | Chinese online real estate services | $100 | -9% | 19% |
| Paycom Software (PAYC) | SaaS for payroll and HR management | $100 | -21% | 8% |
| Moelis & Company (MC) | Investment bank and financial advisor | $163 | -9% | 4% |
| Sabre (SABR) | Global Distribution System for air travel | $627 | -16% | 3% |
| Sportsman's Warehouse (SPWH) | Outdoor sporting goods retailer | $119 | -21% | 3% |
| Vital Therapies (VTL) | Biotech: bio-artificial liver cells | $54 | -29% | 0% |
| City Office REIT (CIO) | Office properties REIT | $73 | -17% | -1% |
| Opus Bank (OPB) | California-chartered commercial bank | $154 | -8% | -2% |
Two small companies set terms
Mapi-Pharma (MAPI), set terms for a $40 million IPO on Thursday. It hopes to take share in the $4.3 billion market for Teva's Copaxone, a treatment for multiple sclerosis whose patent expires in 2014. Mapi's CEO launched Copaxone while at Teva and has led development of an enhanced generic version that requires monthly instead of daily injections. Tecogen (TGEN), which produces natural-gas-powered cogeneration systems, set terms for an $11 million IPO. It previously planned to raise $20 million in September, but withdrew in October citing poor market conditions.
| IPO terms filings (week of April 14, 2014) | |||
| Company (Ticker) | Business | Deal Size ($mm) | LTM Sales ($mm) |
| Mapi-Pharma (MAPI) | Biotech: enhanced generics including Teva's Copaxone | $40 | $0 |
| Tecogen (TGEN) | Combined heat and power cogeneration systems | $11 | $16 |
Eight new companies file for an IPO, including Chukong and Zoosk
After eight companies filed to go public last week, this month is on track to be the most active April for new initial filings in over a decade, a measure we also saw in January, February and March this year. Chukong Technologies, a Chinese mobile game developer, filed for an IPO that could raise up to $150 million on Friday, one day after King Digital (KING) announced that it had partnered with Tencent to launch Candy Crush in China. With Chukong generating 73% of revenue from its Fishing Joy series, the company's mobile gaming model draws comparisons to that of King, whose stock has fallen 21% since its IPO last month amid concerns of a dependence on one game. Zoosk operates its online data-driven dating platform for over 26 million members. The company turned profitable in the 4Q13, spent about 72% of revenue on marketing and generated $178 million in revenue last year for a 3-year sales CAGR of 52%. Additional filers included a niche-industry small business lender (Live Oak Bankshares, LOB), a Northwestern farming operation (Taggares Agriculture, TAG) and three biotechs. The largest new biotech, Zafgen (ZFGN), is a Cambridge, MA-based company that is developing a treatment for obesity.
| IPO initial filings (week of April 14, 2014) | |||
| Company (Ticker) | Business | Deal Size ($mm) | LTM Sales ($mm) |
| Chukong Technologies (CHKG.RC) | Chinese mobile game developer | $150 | $92 |
| Zoosk (ZSK) | Data-driven online dating platform | $100 | $178 |
| Live Oak Bancshares (LOB) | Small business lender | $86 | $58 |
| Zafgen (ZFGN) | Biotech: treatment for obesity | $86 | $0 |
| First Foundation | California-based financial services firm | $58 | $58 |
| Taggares Agriculture (TAG) | Grape and apple farming in the Pacific Northwest | $48 | $8 |
| Angion Biomedica (ANGN) | Biotech: injured organ regeneration | $35 | $7 |
| Vyrix Pharmaceuticals (VRYX) | Biotech: prevents premature ejaculation | $30 | $0 |
IPO market snapshot
So far this year, 91 IPOs have raised $18.4 billion and produced an average first day return of 18%. The Renaissance IPO ETF (symbol: IPO) has fallen 1% compared with +1% for the S&P 500. Over the last 30 days, the IPO ETF has fallen 7% while the S&P 500 has remained flat. The improvement over last week's one-month decline of 11% suggests that IPO aftermarket returns may have hit their trough. The active IPO pipeline includes 116 companies looking to raise a total of $26.2 billion.
