10 deals are on the IPO calendar to raise $4.2 billion for the week of November 17, 2014. This should be the IPO market's largest equity raise in 8 weeks, led by the $2.3 billion initial public offering of office REIT Paramount Group. MLPs have been the yield play of 2014, but Paramount and Oaktree-backed STORE Capital will test the waters for REITs that could launch in the 4Q. Two more large IPOs should command investors attention based on their size - French/Brazilian online retailer Cnova and pesticide maker Adama. Investors have had a taste for restaurant IPOs with a growth story, and The Habit Restaurants could fit the bill.
Over half of last week's IPOs priced below the range but the group had mostly positive trading. This week the IPO market will see a diverse group of deals, while our pipeline update highlights a number of notable offerings that could hit in mid-December, including a pickup of software companies and another billion dollar IPO.
Two large REITs on Wall Street early in the week
Paramount Group (PGRE) could be the largest IPO of a REIT as it seeks to raise $2.3 billion. Only three small and poorly performing REITs have gone public this year (CIO, FPI, BRG), compared with 19 at this point last year. Paramount, a peer to October 2013 IPO Empire State Realty (ESRT), is distinguished by its 12 Class A office properties in competitive markets. Investors have been willing to pay for large MLPs with potential growth, and could be equally receptive to Paramount if they believe the company can attract quality tenants while managing its debt.
STORE Capital (STOR) is scheduled to raise $495 million. Formed by Oaktree (OAK), STORE used sale-leaseback transactions to acquire 850 single-tenant retail properties at a 100% occupancy rate, all occupied under triple-net leases. While an economic downturn could cause tenant bankruptcies, the company's management may be able to raise interest based on their experience executing a similar strategy at Spirit Finance and Franchise Finance Corporation of America.
Two large international companies listing in the US
Cnova (CNV), a fast-growing online retailer with the #1 or #2 market positions in France and Brazil, is looking to raise $355 million (a float of just 6% of the market cap). Like Amazon (AMZN), the IPO candidate operates on razor-thin margins. With over $5 billion in annual gross merchandise volume, it is the third large international e-commerce IPO of the year, after China-based JD.com (JD; up 42% from IPO) and Alibaba (BABA; up 69%). Cnova recently adjusted its strategy to be the low-cost leader, which could either threaten or expand margins depending on whether the move drives traffic from the direct retailing site to its more profitable marketplace business.
Adama Agricultural Solutions (ADAM) is the world's largest producer of generic crop protection chemicals. Adama was originally listed on the Tel Aviv Stock Exchange as Makhteshim-Agan Industries but was taken private in 2011 for $2.4 billion by China National Chemical Corp and Israel's Discount Investment Corp. At the midpoint, it now commands a market value of $2.7 billion and enterprise value of $3.6 billion. In October, IPO candidate and peer crop protection chemicals maker Arysta LifeScience announced that it had been acquired by Platform Specialty Products (PAH) for $3.5 billion.
Fast growing fast casual restaurant IPO
The Habit Restaurants (HABT) operates 99 fast casual burger locations, and follows after 2014 restaurant IPOs El Pollo Loco (LOCO; year's 9th best IPO, up 129%) and Zoe's Kitchen (ZOES; 10th best, up 112%). Its 43 consecutive quarters of positive comp growth, award-winning burgers and 49% sales growth in the 9mo14 speak to the company's potential, assuming it can successfully apply its concept outside of California, competing with companies like Five Guys, Smashburger and Shake Shack.
Too many burgers? There's an injection for that.
Neothetics (NEOT) is developing an injectable fat reduction treatment using a formulation of the approved asthma drug in GlaxoSmithKline's (GSK) Advair inhaler. Backed by Domain Partners and Alta Partners, Neothetics recently completed a large Phase 2 trial and expects to launch its drug in the 2H16. It is a peer to 2012 IPO KYTHERA Biopharma (KYTH), up over 100% from its offer price.
The bionic eye for blindness
Second Sight Medical Products (EYES) has sold a total of 90 implantable devices with attached cameras, which give blind individuals the ability to "see" patterns of light. Backed by co-founder and Chairman Alfred Mann, the CEO of MannKind (MNKD), Second Sight's device could see interest based on it being a first-of-its-kind treatment that could later be approved for widespread use, similar to September IPO ReWalk Robotics (RWLK).
Two companies revisit the IPO market
Since 1998, construction equipment rental company Neff (NEFF) has gone public, been delisted, set terms for another IPO, withdrawn its filing, and filed for and been taken out of bankruptcy, all with four different owners. The company carries substantial debt on its balance sheet ($508 million market cap; $1.25 billion enterprise value) largely due to owner Wayzata's recent distributions, but Neff stands to benefit from increased spending on infrastructure, oil and gas projects and construction.
Peak Resorts (SKIS) originally set terms for a December 2011 IPO, but postponed and later withdrew. The ski resort operator has opened its 13th mountain since then, though it still generates most of its revenue from Vermont's Mount Snow. Close peer Intrawest Resorts (SNOW) went public in January and trades 15% below its offer price.
eHi Car Services (EHIC) had planned to go public last week, but pushed back its IPO to this week. In its latest amendment, the Enterprise-backed Chinese car rental company noted allegations of fraud that it investigated and found to be without merit.
| IPO Calendar | ||||
| U.S. Calendar | ||||
| Issuer Business |
Symbol Exchange |
Deal Size ($m) |
Price Range Shares Filed |
Top Three Bookrunners |
| Paramount Group New York, NY |
PGRE NYSE |
$2,293 | $16.00 - 19.00 131,000,000 |
BofA Merrill, Morgan Stanley, Wells Fargo |
| Owns 12 premier office buildings in NYC, Washington, DC and San Francisco. |
||||
| STORE Capital Scottsdale, AZ |
STOR NYSE |
$495 | $17.00 - 19.00 27,500,000 |
Goldman Sachs, Credit Suisse, Morgan Stanley |
| Retail REIT formed by Oaktree Capital with 850 single-tenant properties. |
||||
| Adama Agricultural Solutions Israel |
ADAM NYSE |
$400 | $16.00 - 18.00 23,500,000 |
Goldman Sachs, BofA Merrill, Citi |
| The world's largest producer of generic crop protection chemicals. |
||||
| Cnova France |
CNV NASDAQ |
$355 | $12.50 - 14.00 26,800,000 |
Morgan Stanley, J.P. Morgan, BofA Merrill |
| French and Brazilian e-commerce discounter spun out of retail giant Casino. |
||||
| Neff Miami, FL |
NEFF NYSE |
$220 | $20.00 - 22.00 10,476,190 |
Morgan Stanley, Jefferies, Piper Jaffray |
| Lessor of industrial and construction equipment taken out of bankruptcy. |
||||
| eHi Car Services China |
EHIC NYSE |
$130 |
$12.00 - 14.00 10,000,000 |
J.P. Morgan, Goldman Sachs |
| Chinese car rental service with an 18,000 vehicle fleet in 90 cities. | ||||
| Peak Resorts Wildwood, CA |
SKIS NASDAQ |
$100 | $9.00 - 11.00 10,000,000 |
FBR Capital, Stifel, Baird |
| Operates 13 overnight-drive and day-ski resorts in the Northeast and Midwest. |
||||
| The Habit Restaurants Irvine, CA |
HABT NASDAQ |
$75 | $14.00 - 16.00 5,000,000 |
Piper Jaffray, Baird, Wells Fargo |
| Operates 99 fast casual burger restaurants predominantly in California. |
||||
| Neothetics San Diego, CA |
NEOT NASDAQ |
$60 | $13.00 - 15.00 4,300,000 |
Piper Jaffray, Guggenheim |
| Biotech targeting fat reduction with an injectable formulation of an approved asthma drug. |
||||
| Second Sight Medical Products Sylmar, CA |
EYES NASDAQ |
$32 | $9.00 3,500,000 |
MDB Capital |
| Sells camera-based retinal implants that restore partial vision to the blind. |
||||
Renaissance Capital will have Pre-IPO Research available on each of these upcoming IPOs prior to pricing.
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Pipeline Update
The IPO market could see a busy December as 9 companies submitted initial filings in the past week and 11 updated financials. The week of Thanksgiving typically has few IPOs or roadshows, so the weeks of December 8 and 15 are prime opportunities for companies hoping to IPO in 2014.
Technology IPOs have been underrepresented in the 2H14, but the end of the year could see an uptick based on recent filings from New Relic (NEWR) and Hortonworks (HDP) along with updated financials from Momo (MOMO). Online small business lender On Deck Capital (ONDK) filed, joining close peer LendingClub (LC). Oaktree/Bain-backed REIT International Market Centers (IMC) filed and Polar Star Realty (PSRT) updated financials; the timing of their IPOs could hinge on the performance of this week's two large REITs.
Univar (UNVR) updated financials too, making the LBO'd chemicals distributor the most likely candidate for a billion-dollar IPO in December. Intrepid Aviation (INTR) joined fellow aircraft lessor Avolon Holdings (AVOL) on file. Smart Sand Partners (SSLP), an MLP competing with October IPO Fairmount Santrol (FMSA), submitted its filing even as sand producers for oil and gas companies (HMLP, EMES) tumble from their late August peak (the same day Smart Sand filed confidentially).
Recent IPOs and YTD IPO trends
Last week, 9 IPOs raised $2 billion, bringing the year's total to 252 IPOs and $79 billion in proceeds. Virgin America (VA), a US airline operating primarily out of San Francisco and Los Angeles, was the week's winner, ending up 30% from its IPO price.
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).
