12 US IPOs are expected to raise $1.7 billion this week. Following three weeks with 5 or fewer initial public offerings, the IPO calendar has quickly built up thanks to a rebound in the broader markets, positive IPO performance and a packed pipeline of deals on file. While the IPO window appears to have reopened after a brief interruption, investors should keep in mind that half of this week's deals have a diluted market cap of about $300 million or less.
The week ahead includes 2 energy IPOs, a diverse group of 5 health care companies, a high-growth consumer IPO, 2 acquisition-based tech and retail offerings and 2 banks. Expected to raise $750 million, Antero Midstream Partners LP should be the week's largest IPO and follows last week's offering from Shell. LBO'd contract research organization (CRO) INC Research and refrigerated pet food maker Fresh Pet could also capture investors' attention.
Antero Midstream - year's second largest MLP to IPO
Antero Midstream Partners LP (AM) is scheduled to be the year's second largest energy MLP IPO behind Shell Midstream Partners LP (SHLX), which raised an upsized $920 million last week and and gained 47% to be the largest and best-performing. Based on Shell's success along with close peer and September IPO CONE Midstream Partners LP (CNNX; up 38%), Antero Midstream may raise more than $750 million, especially considering its relatively attractive yield and growth potential from parent Antero Resources (AR).
Based in Hong Kong, Sky Solar Holdings (SKYS) manufactures solar energy assets and generates revenue under long-term contracts. Unlike 2014 solar energy IPOs Abengoa Yield (ABY) and TerraForm Power (TERP), Sky Solar will not distribute its earnings, and investors will instead rely on an expansion story that includes Japan, Latin America and potentially China.
Freshpet and Upland: Fast growing consumer and tech
Citing a growing trend toward organic foods and treating pets like family members, Freshpet (FRPT) sells refrigerated dog and cat food. Its custom-built "Freshpet Fridges" are installed in over 12,500 retail stores, including Walmart, Kroger, Whole Foods, Petco and PetSmart. Backed by growth equity from MidOcean Partners, the company saw revenue grow 38% to $40 million in the six months ended June 30, 2014, with a now-positive EBITDA of $2 million.
Since 2010, Upland Software (UPLD) has rolled up six enterprise work management software products, which account for most of its growth. Upland's management comes from Perficient (PRFT), where they also executed an acquisition-based strategy. Led by the former CEO of Mary Kay, CVSL (CVSL) has also has grown through a number of acquisitions as the company seeks to improve the operations of direct selling businesses. The OTC-traded company will uplist to the NYSE MKT.
5 health care IPOs include an LBO'd CRO, 2 biotechs, a device and a chiropractic network
INC Research (INCR), one of the five largest global CROs, should be the week's second largest IPO. LBO'd in 2010 by Avista and the Ontario Teachers' Pension Plan, the company performs Phase 1 through Phase 4 clinical trials for pharmaceutical, biotech and medical device companies. Though leveraged after the IPO, INC Research boasts revenue grew 25% to $600 million during the nine months ended September 30. CEO Jamie Macdonald previously worked for 15 years at market leader Quintiles (Q), which has gained 46% since ts May 2013 IPO.
Coherus BioSciences (CHRS) is set to raise $86 million and is in the top 10% of 2014 biotechs by size with a $508 million diluted market cap at the midpoint. Developing a biosimilar version of Amgen's (AMGN) Enbrel treatment, Coherus targets a multi-billion market with its lead candidate, one of several in the pipeline. The year's other biosimilar biotech, Pfenex (PFNX), had poor initial performance but now trades 35% above the offer price.
Nevro's (NVRO) proposed $100 million IPO follows the postponed offerings from two other neuromodulation device makers (STIM and NSIG). Backed by Johnson & Johnson, Novo A/S, Bay City Capital, Three Arch and NEA, the company has sold implanted leg and back pain devices in Europe since 2010 and recently submitted its Premarket Approval to the FDA. The week's smallest IPO at $30 million, The Joint (JYNT), takes a more traditional approach for back pain with over 225 franchised cash-based chiropractic clinics. While Fresh Pet targets a nascent market, Jaguar Animal Health's early-stage botanic drug (JAGX) addresses the ever-present need for a diarrhea-free dog. Jaguar plans to raise $40 million and no doubt hopes to avoid the reception of the year's other pet biotech (PARN, down 53%).
A Midwestern bank and a virtual bank
Triumph Bancorp (TBK) is somewhat unique in operating 2 branches including its headquarters out of Dallas and 18 branches across Iowa and Illinois. While US banks have had unimpressive IPOs in 2014 (5% average return), recent banks have seen better performance, including two Midwest banks (ABCW up 16%, GWB up 8%) and two Texas banks (VBTX up 8%, GNBC up 14%). The week's other bank, Radius Bancorp (RADB), also offers an interesting story. The New England-based virtual bank is being divested from two carpenter group pension funds in compliance with the Dodd-Frank Act, and as such the $64 million float should represent 90% of its market value.
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Renaissance Capital will have Pre-IPO Research available on these upcoming IPOs prior to pricing.
IPO Pipeline Update
130 IPOs are on file to raise about $26 billion. For three consecutive months, the IPO market has failed to to surpass 2013 levels by deal count, but November appears poised to buck the trend with this week's 12 IPOs and 4 more already on the calendar beyond that. The week of November 10 could see the year's largest biotech offering from FibroGen (FGEN) and an $878 million IPO from Carlyle-backed Axalta Coating Systems (AXTA). Cnova (CNV), a large French/Brazilian ecommerce spinoff, is on the calendar for the following week.
Last week saw just two companies submit initial filings - Enviva Partners LP (EVA), a wood pellets maker backed by Riverstone/Carlyle, and J. Alexander's (JAXH), a full service restaurant operator controlled by Fidelity National Financial. Several IPOs on file recently indicated plans to launch in the 4Q by updating financials, including crude-by-rail terminal PES Logistics LP (PESL), crude oil tanker operator Navios Maritime Midstream Partners LP (NMMP.RC) and KKR-backed CRO PRA Health Sciences (PRAH). PRA could soon launch based on the reception of this week's INC Research, a close peer.
Recent IPOs and YTD IPO trends
Last week, 4 IPOs raised $1.2 billion, bringing the year's total to 235 IPOs and $75 billion in proceeds. Shell Midstream Partners LP (SHLX), a Shell-backed MLP that owns crude oil and refined products pipelines, was the week's winner, ending up 47% from its IPO price. Raising $920 million, Shell Midstream was the year's largest MLP IPO (out of 15). It also has the year's best first-day and total return for an MLP.
The Renaissance US IPO Index, a market cap weighted basket of newly public companies designed to represent the US IPO market, has gained 6% year-to-date. Renaissance Capital's IPO ETF tracks the index, and its top holdings include Alibaba (BABA), Zoetis (ZTS), Twitter (TWTR), Workday (WDAY) and Hilton (HLT).
