5 IPOs are expected to raise $456 million during the week of October 20. After five straight weeks of raising over $1 billion, the IPO market appears to have chilled due to the broader market selloff and weaker returns. Aside from two small health care companies and one small bank offering, this week's hodgepodge of IPOs includes a $200 million deal from Fifth Street Asset Management and a $150 million uplisting of Electronic Cigarettes International, which is currently traded on the OTC markets. DBV Technologies, a biotech publicly listed in Paris that is developing an immunotherapy patch for food allergies, launched on Monday to price its IPO on Tuesday.
Last week the market took a downturn, the VIX volatility index briefly spiked above 25 and no new deals were added to the IPO calendar. Helped by a market rally on Friday, however, four of the five IPOs had positive returns and were particularly strong for the two largest deals, fiber optic network Zayo (ZAYO) and energy MLP Dominion Midstream (DM). IPO investors have become more discerning and this week's trading could determine whether deal flow returns to its heightened levels or largely shuts off.
Year's fourth asset management IPO Fifth Street fights negative trends
Fifth Street Asset Management (FSAM) should be the week's largest IPO, expected to raise $200 million. With $5.6 billion in assets under management (AUM), the credit-focused alternative asset manager has benefited from the departure of traditional banks from small to mid-sized business lending. The company operates two publicly traded business development companies (FSC, FSFR) and its proposed dividend appears attractive if rapid AUM growth continues. However, the middle market lending business is highly competitive and the industry has experienced poor trading. Close peer Medley Management (MDLY) has fallen 14% since its September IPO while the year's other two asset managers (OMAM, ARES) also trade below issue.
Thank you for vaping
Electronic Cigarettes International Group (ECIG) is expected to raise $150 million when it uplists from the OTC Bulletin Board to NASDAQ. The company markets a portfolio of acquired e-cigarette brands (VAPESTICK, 10 Motives, FIN, VIP, Victory) in a rapidly growing industry, one that could also see higher regulation and taxes in the future. While the company faces intense competition from tobacco companies, it could have an M&A angle if a big tobacco player wanted to challenge Lorillard's (LO) top position with its blu eCigs. The IPO's reception could influence the timing of recent filer Kimree (KREE), a China-based e-cigarette designer and manufacturer.
Small IPOs from a biotech, medical device company and bank
The last six biotechs broke issue on the first day of trading, signaling challenges for the most active IPO group of 2014. Proteon Therapeutics (PRTO) is in Phase 3 trials for a treatment that prevents veins from scarring after AVF procedures for patients on dialysis. Last week's Atara Therapeutics (ATRA), an earlier-stage kidney disease biotech with a similar valuation, initially fell but had a 9% gain by Friday.
EndoStim (STIM) is developing an electrical device called a neurostimulator used to treat gastroesophageal reflux disease (GERD). Backed by Santé Ventures, the company received the CE Mark in 2012 and plans to commercialize in Europe next year while it pursues FDA approval in the US. Neurostimulator maker NeuroSigma (NSIG) recently postponed its IPO. Anchor BanCorp Wisconsin (ABCW) could be the year's smallest IPO by deal size; its $10 million offering at a $247 million market cap suggests the company is more interested in listing than raising capital.
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Pipeline update
The IPO pipeline has swelled to 137 deals expected to raise about $28 billion, including seven initial filings last week. The Habit Restaurants (HABT) could be the first of several fast casual burger chains to file for an IPO as similar concept restaurants are well-received. After 43 days without a new technology filing, two arrived on Friday - semiconductor design outsourcer Verisilicon (VERI) and SaaS maker Workiva (WK). Major tech IPOs Box and Good Technology announced plans to delay until 2015 and Zoosk and GoDaddy may follow suit.
Shipping company Euronav (EURN) also announced delaying its IPO due to market conditions, but headwinds in the energy sector may not hold back the MLP-dominated energy IPOs on file based on the success of Dominion Midstream and recent filings from a tanker operator (NMMP.RC) and a rig company (ORLP). Two biotechs postponed last week, two broke issue on the first day and one in the pipeline withdrew (DNCE). Health care IPOs still make up about one third of the total pipeline, though almost quarter set terms and later postponed.
IPO Market snapshot
Last week, there were 5 IPO pricings. Dominion Midstream Partners LP (DM), an MLP carved out of Dominion Resources to own an LNG terminal in Maryland, was the week's winner, ending up 32% from its IPO price. The only IPO to end the week below issue was Forward Pharma (FWP), which priced at the midpoint to give it a nearly $1 billion valuation.
So far this year, 228 IPOs have raised about $74 billion, averaging a first-day pop of 13% and a total average return of 6%. The Renaissance US IPO Index (Ticker: IPOUSA), a market-cap weighed basket of newly public companies designed to represent the US IPO market, has gained 0.5% year-to-date, suggesting IPO investors will remain discerning. Renaissance Capital's IPO ETF tracks the index, and its top holdings include Alibaba, Twitter, Zoetis, Workday and Hilton.
