7 IPOs collectively raised just over $1 billion in a volatile week for stocks. The IPO market has seen 223 deals year-to-date, surpassing 2014's full-year post-bubble record of 222 (post to Twitter). Marketing SaaS provider HubSpot (HUBS) was the only IPO to price above the midpoint, and it and Diplomat Pharmacy (DPLO) posted the top returns for the week with 20%+ first-day gains. Malaysian online payment service provider MOL Global (MOLG) dropped 35% on its first day, giving it the worst first-day performance for an IPO in the last 10 years. In a worrying sign for future IPO activity, the VIX Volatility Index spiked above 20 for the first time since early February.
Diplomat Pharmacy proves agreeable with investors
Diplomat Pharmacy (DPLO) was the top performing IPO last week, gaining 23% on Friday. The specialty pharmacy company had been a small regional player for three decades before starting a rapid national expansion in 2005. It reached $1.5 billion in net sales in 2013 and took in $104 million in investments from T. Rowe Price and Janus Capital in early 2014.
While Diplomat priced its IPO below the range, HubSpot (HUBS) priced $4 above its range and still generated a solid 16% gain for the week. Backed by General Catalyst Partners, Matrix Partners and Sequoia Capital, HubSpot provides a marketing automation platform to over 11,500 small and mid-sized businesses.
MOL money, MOL problems
Backed by Malaysian billionaire Vincent Tan, MOL Global (MOLG) aims to become a dominant payment processor in the developing world, but its severe first-day drop may reflect concerns over declines in users of its online game credit service and margins for its online merchant processor in the first half of the year. MOL Global was the fourth IPO to drop by at least 20% on the first day of trading in 2014, following Viggle, Macrocure and Bio Blast Pharma (none of which raised more than $60 million; MOL Global raised $169 million).
Dave & Buster’s finally in play
Dave & Buster’s (PLAY) ended its long hiatus from public trading with a $94 million IPO and gained 8%. The dining and gaming center operator was taken private in 2006 and sold to Oak Hill Capital for $596 million in 2010. It withdrew a previous IPO attempt in October 2012 and finally completed its IPO last week, coming off 5% comp growth in the first half of 2014.
The remaining IPOs included a small Dallas-based bank, Veritex Holdings (VBTX), which gained 15%. OM Asset Management (OMAM), which represents the US operations of Old Mutual (LSE: OML), fell 1% after pricing below the range. USD Partners LP (USDP), which owns a crude oil rail terminal in Hardisty, Canada, traded down 2% in a rough week for energy stocks, as oil prices continued to drop.
Investors unfazed by electrical pulses to the brain
The challenging IPO market had one casualty this week. NeuroSigma (NSIG), which sells bio-electrical devices used to treat drug-resistant epilepsy, postponed its $50 million IPO. A lack of interest in the stock could be a hurdle for another upcoming neurostimulator device maker, EndoStim (STIM), set to price its $35 million IPO during the week of October 20.
| IPO pricings (week of October 6, 2014) | |||||
| Company (Ticker) | Business | Deal Size ($mm) | IPO Price vs. Midpoint | First Day | Return as of 10/3 |
| Diplomat Pharmacy (DPLO) | Fourth-largest US specialty pharmacy | $173 | -13% | 23% | 23% |
| HubSpot (HUBS) |
Marketing automation SaaS platform |
$125 |
25% |
20% | 16% |
| Veritex Holdings (VBTX) |
Dallas bank with 8 branches |
$35 | 0% | 12% | 15% |
| Dave & Busters (PLAY) |
Oak Hill LBO: 70 restaurant/arcades |
$94 | -6% | 8% | 8% |
| OM Asset Management (OMAM) | Asset management arm of Old Mutual | $308 | -13% | -0.4% | -1% |
| USD Partners LP (USDP) |
MLP: oil and gas rail terminals |
$155 | -15% | -6% | -2% |
| MOL Global (MOLG) | Online payments in Southeast Asia |
$169 | -7% | -35% | -34% |
IPO market snapshot
So far this year, 223 IPOs have raised $72.2 billion and produced an average first day return of 13.1%. The Renaissance IPO ETF (symbol: IPO), a float cap-weighted basket of newly public companies and indicator of post-IPO performance, has fallen -0.6% compared with a 3.1% gain for the S&P 500. Over the last 30 days, the IPO ETF has fallen 8.0% compared with -4.0% for the S&P 500, suggesting that the IPO market will remain price-sensitive to new issuance. The active IPO pipeline includes 138 companies looking to raise a total of $29.4 billion.
