This week saw 8 IPOs raise $1.7 billion. While 5 of the 13 were delayed, the rest averaged 18% return, and all but one ended the week positive. Broader markets continue to rally as the Dow and S&P 500 closed at new record highs and the VIX volatility index slid another 6%. Despite these trends, IPO investors remain discerning: in addition to the postponed offerings, this week's IPOs saw 2 price below the range, 3 within the range and 3 above.
The largest deal, Antero Midstream, also saw the highest initial demand as it priced 25% above the midpoint to raise $1 billion. Even though Xenon Pharmaceuticals was forced to discount its valuation, the biotech gained 48% by Friday to become the week's winner. Fast growing companies Nevro and Freshpet also had strong returns, while Upland Software had unusually poor first day performance for a technology IPO.
Another week, another midstream: Antero Midstream is year's largest MLP
Antero Midstream (AM) filed in February with a $500 million deal size, set terms to raise $750 million in October and then offered more shares at a higher price to attract $1 billion on its IPO, the year's largest MLP to go public. That title was briefly held by last week's midstream IPO from Shell (SHLX), which priced at a lower premium and spiked 46% on its debut. Close peer CONE Midstream Partners LP (CNNX) had similar success in September, leading Antero to price its IPO with a lower yield. Even as current yield drops well below 3%, investors have been willing to pay for the dividend growth potential provided by a large parent (Antero Resources, AR) with dedicated dropdown assets.
Four health care IPOs: biotechs, devices and outsourced research
Xenon Pharmaceuticals (XENE) postponed its $44 million as the market bottomed out in October, but came back this week. The biotech, which licenses a drug discovery platform to uniQure, Teva and Genentech, priced below the range but traded up 48% by end of week. Post-IPO investors may have shared the confidence of Xenon's partners as Teva bought 28% of the offering ($10 million) and Genentech invested $4.5 million in a private placement. February IPO uniQure (QURE), however, still trades nearly 40% below its offer price. Like Xenon, Coherus BioSciences (CHRS) also faced initial pushback as it ended day one below issue but achieved a 12% return by Friday.
Nevro (NVRO), which is awaiting FDA approval for an implanted electrical device that treats leg and back pain, gained 40% on its first day after pricing above the range. Backed Johnson & Johnson (JNJ) and well-known VCs, Nevro plans to continue to selling its next-generation pain relief devices in Europe as it prepares to ramp up US sales upon approval. Although the last two electrical device makers postponed their IPOs (NSIG, STIM), Nevro's market position is more comparable to July IPO Intersect ENT (XENT), up 64% from the offer price.
INC Research (INCR), a contract research organization specializing in CNS, cancer and complex diseases, gained 11% on its first day of trading Friday. 2014 has been a record year for biotechs IPOs, which pay CROs like INC to conduct Phase 1 to 4 clinical trials. This past week, the CRO sector has seen high activity as close peer PRA Health (PRAH) announced it would go public next week, PAREXEL fell after disappointing results and Covance announced it would be acquired by LabCorp at a 32% share premium.
The dogfood of champions gains 27%
Freshpet (FRPT), which sells fresh pet food via custom fridges installed at over 12,500 retail stores, gained 27% on its Friday debut. Backed by growth equity from MidOcean Partners and run by former executives of Meow Mix, Freshpet claims to benefit from trends in both organic food and pet pampering. Refrigerated pet food may be a novel concept, but it is also a proven one, as demonstrated by the company's large retail reach, fast growth (38% in the 1H14) and relatively high margins (20%+ EBITDA).
Upland software goes downhill
Upland Software (UPLD), which offers a suite of acquired cloud-based enterprise work management software, recovered somewhat from its 19% first day drop, but was still the only IPO to end the week below its offer price. Formed in 2010, the company targets small software providers in a fragmented market that it believes can be brought up to scale. Upland's performance is not necessarily a red light for the sector and instead could signal cautions about its concept; investors appear willing to pay for tier 1 technology IPOs that have achieved rapid growth, such as HubSpot (HUBS) and CyberArk (CYBR).
The second lowest performing IPO, Triumph Bancorp (TBK), also had an acquisition-based strategy with limited operating history. It operates 20 branches in the Midwest and Texas with $1.4 billion in assets and no plans for a dividend. Both Upland and Triumph now trade about 15% below their respective midpoints, though the bank slashed its range and rose on the first day.
3 deals postponed, 2 pushed back to next week
Three companies postponed IPOs, including the week's third largest by deal size, Sky Solar Holdings (SKYS). Sky Solar is an early-stage independent power producer with solar energy assets. The other two postponed deals were virtual bank Radius Bancorp (RADB) and dog diarrhea biotech Jaguar Animal Health (JAGX), both microcap companies.
CVSL (CVSL), like Electronic Cigarettes International (ECIG) two weeks ago, is a highly acquisitive company that delayed its NASDAQ uplisting from the OTC Markets. CVSL, however, will attempt its offering during the week of November 10. Led by the former CEO of Mary Kay, rollups like CVSL are essentially a bet on management. The other delayed deal, The Joint (JYNT), franchises 225 cash-based chiropractic clinics in the US.
| IPO pricings (week of November 3, 2014) | |||||
| Company (Ticker) | Business | Deal Size ($mm) | IPO Price vs. Midpoint | First-day pop | Return as of 11/7 |
| Xenon Pharmaceuticals (XENE) |
Rare disease drug platform | $36 | -18% | 17% | 48% |
| Nevro (NVRO) |
Implanted device for leg/back pain | $126 | 13% | 40% | 41% |
| Freshpet (FRPT) | Refrigerated pet food | $156 | 15% | 27% | 27% |
| Antero Midstream Partners LP (AM) | Marcellus/Utica pipeline MLP | $1,000 | 25% | 12% | 12% |
| Coherus BioSciences (CHRS) | Biosimilar of Amgen's Enbrel | $85 | 0% | -7% | 12% |
| INC Research (INCR) | Global CRO | $150 | 0% | 11% | 11% |
| Triumph Bancorp (TBK) | Midwestern bank | $80 | -20% | 6% | 6% |
| Upland (UPLD) | Rollup of work management software | $46 | -8% | -19% | -10% |
IPO Market snapshot
So far this year, 243 IPOs have raised about $76.5 billion, averaging a first-day pop of 13%. The Renaissance IPO Index, a market cap weighted basket of newly public companies designed to represent the US IPO market, has gained 8.4% 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).
The IPO market has raised over $1 billion in 7 of the past 8 weeks. Next week could see 10 deals raise $2.2 billion, led by auto paint maker Axalta (AXTA), contract research organization PRA Health (PRAH) and airline Virgin America (VA).
