The IPO market has returned in full force, beginning with the 117% first-day pop of ReWalk Robotics (RWLK) on Friday, the year's fifth IPO to double on the first day (since Castlight Health in March) and the only IPO to do so after pricing below the range since 2000. Seven IPOs are on the calendar this week, including one LBO'd care provider, five biotechs and the largest IPO of all time, Alibaba (BABA). Aside from ReWalk's run-up, investor appetite appears primed as the Renaissance IPO ETF trades around new highs.
Alibaba: Deal could raise more money than the last 90 IPOs
Undoubtedly the defining IPO of 2014, Alibaba represents a play on China's rapidly growing e-commerce market and, more broadly, the country's increasingly consumer-driven economy itself. With about $300 billion in gross merchandise volume transacted on its sites, Alibaba's scale is staggering. It has an 82% market share of all Chinese online shopping, including 86% of all Chinese mobile retail spending. It is large ($9.4 billion LTM sales), high-growth (46% MRQ) and profitable (58% EBITDA margin). Chinese tech IPOs have been well-received this year with strong post-IPO gains as e-commerce peer JD.com (JD) trades 53% above its offer price.
1 LBO'd care provider with over $1 billion annual revenue
Civitas Solutions (CIVI), a non-institutional care provider for the developmentally disabled, expects to raise $252 million to pay down debt. That deal size may shrink, however; of the year's 20 LBOs that have gone public, 70% have priced below their proposed range. It is also worth noting that another Vestar-backed care provider network, 21st Century Oncology Holdings (ICC), postponed its IPO in May. Civitas should benefit from an increased focus on non-institutional care and a high number acquisition targets, but must first convince investors that it can overcome high levels of debt.
A prostate cancer biotech and pregnancy disorder biotech
Tokai Pharmaceuticals (TKAI) is developing a small molecule therapy for prostate cancer, a $2+ billion market expected to grow substantially. The biotech discovered that, unlike existing treatments, its drug candidate may be effective at treating patients with C-terminal loss, and plans to begin Phase 3 trials in the 1H15. rEVO Biologics (RBIO) hopes to develop its recombinant protein (currently approved to treat a rare blood disorder) as it enters Phase 3 trials for preeclampsia, a serious pregnancy disorder. Like many biotechs, rEVO has accumulated a large deficit and investors must bet that its drug will be approved and adopted.
Biotechs treating acne, cystic fibrosis and diabetes
Foamix Pharmaceuticals (FOMX), an Israeli biotech developing foam treatments for acne, may be hoping for a reception similar to last week's Israeli robotics company, ReWalk, as opposed to biotech IPOs out of Israel. Foamix's Phase 2 trials demonstrated positive results as it targets a large (though competitive) market and receives royalties from Bayer and Merz.
ProQR Therapeutics (PRQR), backed by Sofinnova and Fidelity, is the group's only preclinical biotech, yet those early-stage results for cystic fibrosis via mRNA repair appear promising. The year's other early-stage mRNA biotech, Dicerna Pharmaceuticals (DRNA), had the year's best first-day pop and the worst aftermarket performance. Viking Therapeutics (VKTX) licenses small molecule drugs from Ligand Pharma (its largest shareholder) and plans Phase 2b trials for diabetes next year. Another biotech targeting diabetes, Vitae Pharmaceutical (VTAE), set terms to begin trading next week.
| Expected IPOs (week of September 15, 2014) | |||
| Company (Ticker) | Business | Lead Underwriters | Deal Size ($mm) |
| Civitas Solutions (CIVI) | Non-institutional care for the developmentally disabled | Barclays BofA, UBS |
$252 |
| rEVO Bilogics (RBIO) | Biotech: Protein therapy for blood clotting | Piper Jaffray Guggenheim |
$50 |
| Tokai Pharmaceuticals (TKAI) | Biotech: Small molecule for prostate cancer | BMO Stifel |
$76 |
| Foamix Pharmaceuticals (FOMX) | Biotech: Foam treatments for acne | Barclays Cowen |
$65 |
| ProQR Therapeutics (PRQR) | Biotech: mRNA for cystic fibrosis | Leerink Deutsche |
$75 |
| Viking Therapeutics (VKTX) | Biotech: Small molecule for diabetes | Oppenheimer Roth |
$55 |
| Alibaba Group Holding (BABA) | China's largest e-commerce company | Goldman Credit Suisse |
$20,167 |
The following IPOs are expected to price this week:
Civitas Solutions (CIVI), which provides non-institutional care services for individuals with developmental disabilities, plans to raise $252 million by offering 11.7 million shares at a price range of $20 to $23. At the midpoint of the proposed range, Civitas Solutions would command a market value of $805 million. Civitas, which was founded in 1980, booked $1.2 billion in sales over the last 12 months. The Boston, MA-based company plans to list on the NYSE under the symbol CIVI. Barclays, BofA Merrill Lynch and UBS Investment Bank are the joint bookrunners on the deal.
rEVO Biologics (RBIO), a biotech developing a recombinant protein for the treatment of preeclampsia, plans to raise $50 million by offering 3.6 million shares at a price range of $13 to $15. At the midpoint of the proposed range, rEVO Biologics would command a market value of $261 million. Parent LFB Biotech plans to purchase $10 million worth of shares in the offering (20% at the midpoint) and $10 million in a private placement. rEVO Biologics, which was founded in 1993, booked $18 million in sales for the 12 months ended June 30, 2014. The Framingham, MA-based company plans to list on the NASDAQ under the symbol RBIO. Piper Jaffray and Guggenheim Securities are the joint bookrunners on the deal.
Tokai Pharmaceuticals (TKAI), a biotech developing small molecule therapies for prostate cancer, plans to raise $76 million by offering 5.4 million shares at a price range of $13 to $15. At the midpoint of the proposed range, Tokai would command a market value of $310 million. Insiders intend to purchase $42 million worth of shares on the offering (56% at the midpoint). The Cambridge, MA-based company, which was founded in 2004, plans to list on the NASDAQ under the symbol TKAI. BMO Capital Markets, Stifel and William Blair are the joint bookrunners on the deal.
Foamix Pharmaceuticals (FOMX), an Israeli biotech developing topical foam treatments for moderate-to-severe acne, plans to raise $65 million by offering 6.0 million shares at a price range of $10 to $12. At the midpoint of the proposed range, Foamix Pharmaceuticals would command a market value of $234 million. The Rehovot, Israel-based company, which was founded in 2003, plans to list on the NASDAQ under the symbol FOMX. Barclays and Cowen & Company are the joint bookrunners on the deal.
ProQR Therapeutics (PRQR), a preclinical Dutch biotech developing mRNA treatments for cystic fibrosis, plans to raise $75 million by offering 6.3 million shares at a price range of $11 to $13. Insiders intend to purchase $20 million worth of shares on the IPO (27% at midpoint). At the midpoint of the proposed range, ProQR Therapeutics would command a market value of $252 million. The Leiden, Netherlands-based company, which was founded in 2012, plans to list on the NASDAQ under the symbol PRQR. Leerink Partners and Deutsche Bank are the joint bookrunners on the deal.
Viking Therapeutics (VKTX), a biotech developing treatments for diabetes and other metabolic and endocrine disorders, plans to raise $55 million by offering 5 million shares at a price range of $10 to $12. At the midpoint of the proposed range, Viking Therapeutics would command a market value of $167 million. The San Diego, CA-based company, which was founded in 2012, plans to list on the NASDAQ under the symbol VKTX. Oppenheimer and Roth Capital are the joint bookrunners on the deal.
Alibaba Group Holding (BABA), China's largest e-commerce firm with $296 billion in gross merchandise volume, plans to raise $20.2 billion by offering 320 million shares (62% insider) at a price range of $60 to $66. At the midpoint of the proposed range, Alibaba would command a fully diluted market value of $161 billion. Alibaba, which was founded in 1999, booked $9.3 billion in sales over the last 12 months. The Hangzhou, China-based company plans to list on the NYSE under the symbol BABA. Credit Suisse, Deutsche Bank, Goldman Sachs, J.P. Morgan, Morgan Stanley and Citi are the joint bookrunners on the deal.
Renaissance Capital has issued Pre-IPO institutional research on each of these deals.
Cast your vote for these upcoming IPOs.
11 initial filings include major private equity IPOs
Last week, 11 companies joined the IPO pipeline with initial filings. Notable filers include private equity-backed deals Arysta LifeScience (ARYS), Performance Food Group (PFGC), Dave & Buster's (PLAY) and Freshpet (FPET.RC), all of which were on our Private Company Watchlist (available for research clients).
Arysta, a global pesticide maker LBO'd by Permira that could raise an estimated $500 million, follows the initial filing of close peer Adama Agricultural Solutions (ADMA.RC) last month. Blackstone's Performance Food Group ($13.7 billion LTM sales; 2% EBITDA margin), the third-largest US food distributor, could also raise an estimated $500 million.
Other filers to keep on the radar: Fifth Street Asset Management (FSAM), an asset manager with $5.6 billion in AUM that filed to raise $200 million, and the $400 million IPO of Energy & Exploration Partners (ENXP) an E&P that originally set terms to go public in November 2012 but withdrew its filing.
IPO market snapshot
Last week, there were 2 IPO pricings. ReWalk Robotics (RWLK), an Israeli maker of recently-approved exoskeletons that enable paraplegics to walk, was the week's winner, spiking up 117% from its IPO price on Friday trading.
So far this year, 190 IPOs have raised $40.1 billion and produced an average first day return of 13%. The Renaissance IPO ETF, a float cap-weighted basket of newly public companies and indicator of post-IPO performance, has gained 8.1% compared with 7.4% for the S&P 500. Over the last 30 days, the IPO ETF has risen 6.4% compared with 2.7% for the S&P 500. This suggests that the IPO market remains receptive to new issuance as we approach the fourth quarter, a typically busy time for IPOs. The active IPO pipeline includes 140 companies looking to raise a total of $54 billion.
