10 deals are on the IPO calendar to raise $2.2 billion for the week of November 10, 2014. The two largest, auto paint maker Axalta Coating Systems and contract research organization PRA Health Sciences, are both LBOs. Representing 27% of 2014 deal flow (65 to date), biotechs are the year's largest source of IPOs, and three more are on the calendar this week. Last week's top two IPOs featured a biotech and small medical device company, suggesting the trend could continue. Late in the week the IPO market should see airline Virgin America, mega biotech FibroGen and Chinese auto rental company eHi Car Services.
Year's second largest LBO
The IPO market has seen 27 LBOs go public this year and Axalta Coating Systems (AXTA) would be the year's second largest by deal size ($878 million) at the midpoint. However, no LBO has priced above the range while two-thirds have priced below. Axalta claims it is the #1 global provider of performance auto paint to body shops, though it will remain levered after the offering. PE owner Carlyle plans to float the entire offering.
KKR LBO CRO IPO PRA Health
PRA Health (PRAH), one of the largest global contract research organizations, operates in a large (over $20 billion) and fast-growing (8% CAGR) market. Along with private funding and M&A activity, biotechs have been unusually active in the IPO market this year, and that capital is typically used to fund the trials operated by CROs like PRA Health. Close peer INC Research (INCR) gained 11% on its Friday IPO, a positive sign ahead of PRA's IPO. PRA was bought by KKR last year and merged with pharmaceutical R&D company RPS, which could be an area of growth for the business as it tries to expand margins while paying down debt.
3 Transportation IPOs: by land, air and sea
eHi Car Services (EHIC) is scheduled to be the first Chinese company to IPO since Alibaba (BABA). Backed by Ctrip, Enterprise Rent-a-Car and Goldman Sachs, eHi operates a fleet of over 15,000 vehicles in 90 cities across China.
Virgin America (VA), one of the few major airlines to remain private, positions itself as a low cost carrier with a loyal customer base. Mainly flying in and out of San Francisco and Los Angeles, the company plans to expand its fleet and increase service to new cities. Virgin remains a relative newcomer in a highly competitive space that has recently benefited from favorable fuel costs.
Navios Maritime Midstream Partners LP (NAP), which will join three other Navios Maritime companies (NM, NMM, NNA) in being publicly traded, is set to raise $162 million. Navios will be the fourth shipping IPO of the year (after GLOP, HMLP, LPG) and the first to ship crude oil. Eight more shipping IPOs are on file, including two MLPs (CMRP, XMLP) and one crude oil tanker operator (PMAR).
3 biotechs, including the year's largest by market cap
FibroGen (FGEN) is set to raise $124 million, and its proposed $1.1 billion market value at the midpoint would make it the year's largest biotech, larger than Forward Pharma (FWP), which raised $221 million in October. Its close peer, March IPO Akebia Therapeutics (AKBA), gained 57% on its first day, but now has a -37% return after it recently reported some adverse safety effects. Goldman Sachs has been the lead bookrunner on just one other biotech this year, Atara Biotherapeutics (ATRA), which broke issue on its October IPO but has since traded up 161% above its offer price. Parkinson's biotech NeuroDerm (NDRM) may benefit from the September acquisition of peer Civitas Therapeutics (CVTS), although the other six Israeli biotech IPOs this year have had poor performance.
The two smallest IPOs, female sexual dysfunction biotech S1 Biopharma (SXB) and chiropractic clinic franchisor The Joint (JYNT), are set to price sometime this week. The Joint was previously set to price last Thursday.
Two more companies, CVSL (CVSL) and Viking Therapeutics (VKTX), are evaluating whether they can price on a day-to-day basis. CVSL is a hold-over from last week while Viking was originally set to price in mid-September.
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Pipeline Update
129 IPOs are on file to raise $26.7 billion. Two major REITs set terms to price during the week of November 17 - Oaktree-backed retail REIT STORE Capital (STOR) and premier office building owner Paramount Group (PGRE), which could raise $2.3 billion to be the largest REIT IPO ever. Initial filings have slowed slightly as companies time the Thanksgiving break appropriately and prepare financials as of September 30.
Six IPOs filed in the past week, including two MLPs carved out of 2014 IPOs. Rice Energy's (RICE; January IPO) Rice Midstream Partners LP (RMP) appears to be a response to the success of Marcellus Shale midstream MLPs CONE Midstream (CNNX) and last week's Antero Midstream (AM). Memorial Resource Development's (MRD; June IPO) Terryville Mineral & Royalty Partners LP (TRVL) E&P royalty play is more similar to Diamondback's Viper Energy LP (VNOM) IPO in June. Oil and gas MLPs, most of them transportation and storage ("midstream") asset operators, have consistently done well in the IPO market as investors seek yield with a growth angle. Pipelines and shippers could see higher demand as the US further transitions to an energy exporter while long-term contracts shield the risk of low prices.
Floor & Decor, a warehouse-format floor retailer, is the latest IPO candidate backed by PE firms Ares Management (ARES) and Freeman Spogli, whose 2014 IPOs include SFS, LOCO and BOOT. Momo (MOMO), a Chinese location-based meeting an messaging app provider Momo (MOMO) backed by Alibaba (BABA), Matrix Partners and Sequoia Capital, filed for a $300 million IPO. Biotech filer Inotek Pharmaceuticals (ITEK) is a close competitor with last year's Aeri Pharmaceuticals (AERI), up over 120% since its October 2013 IPO.
Recent IPOs and YTD IPO trends
Last week, 8 IPOs raised $1.7 billion, bringing the year's total to 243 IPOs and $76.5 billion in proceeds. Xenon Pharmaceuticals (XENE), which licenses drugs to uniQure, Teva and Genentech for LPLD, pain and acne, was the week's winner, ending up 17% from its IPO price. Xenon had originally planned to IPO in mid-October during the market selloff but postponed and came back.
The Renaissance US IPO Index, a market cap weighted basket of newly public companies designed to represent the US IPO market, has gained 8% 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).
