Seven companies went public this past week; only one (iDreamSky, DSKY) priced above its midpoint while just one other IPO (Ryerson, RYI) ended the week negative. Broader markets remain rocky, dampening the demand for initial public offerings ahead of the IPO market's August hiatus.
The third quarter's first Chinese IPO
After the spike of US IPOs coming out of China during the second quarter (10), none went public in July. iDreamSky Technology became the third quarter's first, getting in ahead of Alibaba's (BABA) gargantuan IPO (expected in September). iDreamSky publishes 3rd-party content, adapting popular titles like Fruit Ninja, Temple Run and Subway Surfers to the massive Chinese mobile gaming market. Chinese tech IPOs have experienced terrific post-IPO performance; Tuniu (TOUR) has gained 138% and Cheetah Mobile is up 70% after muted first-day trading. A successful follow-through could encourage the long-delayed Chinese gaming IPO Chukong (NEXT) to set terms.
Large price cuts for 2 health care IPOs
With its deal size cut to $57 million, T2 Biosystems (TTOO) is the smallest IPO underwritten by Goldman Sachs (also the company's largest shareholder) in over four years. It gained 30% on its first day and slid 6% on Friday, but remained the week's top performer. Ear biotech Auris Medical (EARS) ended the week up just 1% after it slashed the original IPO price by 45%, resulting in insiders purchasing nearly half of the deal. The IPO market should see another ear biotech, Otonomy (OTIC), price next week.
2 Energy-related IPOs with widely different returns
Höegh LNG Partners LP (HMLP) adds to the growing list of energy MLPs with successful IPOs. Spun out of Höegh LNG Holdings, the company owns three floating storage regasification units (FSRUs) with long-term contracts. Independence Contract Drilling (ICD) saw less demand, possibly driven by its small size and aggressive expansion plans in the face of a cyclical industry, despite growing demand for advanced drilling rigs. The contract land driller operating in the Permian Basin priced 27% below the midpoint and traded up 1%.
Green Bancorp sees green; best 1st day for a traditional bank IPO in 2014
Other than today's Green Bancorp (GNBC), the six traditional regional bank IPOs in 2014 average 0%. All have priced below the midpoint and none trade above 10%. Yet IPO investors may have been drawn in by Green's fast loan growth and concentration in the booming state of Texas, as the stock traded up 14% on its debut.
LBO'd metals distributor prices down, trades down
After postponing its IPO in 2010, Ryerson Holding (RYI) finally went public, though sponsor Platinum Equity was forced to slash the IPO price by 41%. Even then, North America's second-largest metals distributor fell 6% during Friday trading. The company raised $121 million at a valuation of about $350 million, nearly a quarter of the size of the IPO it planned four years earlier. LBOs continue to post disappointing returns, as 60% of the year's 20 trade below their IPO price.
| IPO pricings (week of August 4, 2014) | |||||
| Company (Ticker) | Business | Deal Size ($mm) | IPO Price vs. Midpoint | First-Day Pop | Return as of 8/8 |
| T2 Biosystems (TTOO) | Diagnostic tests for sepsis | $57 | -31% | 30% | 22% |
| Höegh LNG Partners LP (HMLP) | Energy MLP with 3 FSRU vessels | $192 | 0% | 11% | 22% |
| Green Bancorp (GNBC) | Texas bank with 12 branches | $70 | -6% | 14% | 14% |
| iDreamSky Technology (DSKY) | Chinese mobile game publisher | $116 | 15% | 6% | 7% |
| Auris Medical (EARS) | Biotech: tinnitus and ear disorders | $56 | -45% | 0% | 1% |
| Independence Contract Drilling (ICD) | Land drilling rigs in the Permian Basin | $110 | -27% | 1% | 1% |
| Ryerson Holding (RYI) | 2nd largest metals distributor in America | $121 | -41% | -6% | -6% |
2 IPOs postpone, 2 delayed until next week
Just 7 of the 11 IPOs set to price this week went public. Life insurance investment firm GWG Holdings (GWGH) delayed its $20 million IPO until next week, along with the osteoporosis patch biotech Zosano Pharma (ZSAN), which plans to raise $70 million.
Two early-stage biotechs, both hold-overs from last week, postponed IPO plans. Even with well-known backers including Domain Associates and Novo A/S planning to buy almost 30% of the $60 million IPO, NASH/HIV biotech Tobira Therapeutics (TBRA) chose to wait for better conditions. Microlin Bio (MCLB), a micro cap IPO studying microRNA, also decided to postpone until it sees further results or a more receptive IPO market.
High volatility challenges IPO activity
When volatility reigns, recent IPO stocks are among the first sold. For over a week, the S&P 500's volatility index (VIX) has traded above $15, a level unseen since mid-April. IPO Investors generally demand higher valuation haircuts to offset this additional risk, meaning next week's four IPOs may be forced to cut their proposed ranges, add insider buying, or postpone the initial public offering altogether. However, while it is high for 2014, the VIX has only climbed to the low-end of average post-recession levels.
IPO market snapshot
So far this year, 188 IPOs have raised $40.5 billion and produced an average first day return of 13%. The Renaissance IPO ETF (symbol: IPO), a float cap-weighted basket of newly public companies and indicator of post-IPO performance, has gained 0.9% compared with 4.5% for the S&P 500. Over the last 30 days, the IPO ETF has fallen 1% compared with -1.6% for the S&P 500, as broader markets face rocky trading. The active IPO pipeline includes 107 companies looking to raise a total of $43.4 billion.
