9 companies went public in the past week as the IPO market raised $3.5 billion. At 26 deals, November issuance fell one IPO short of last year, unless CVSL manages to price next week. November IPOs raised $7.2 billion and averaged 19% from the offer price, including 4% after the first day. Two companies rose over 100% on their debut, the sixth and seventh IPOs of 2014 to do so.
Retinal implant maker Second Sight Medical Products spiked 122% on its first day and fast casual burger chain The Habit Restaurants gained 120% the next day. Office REIT Paramount Group raised $2.3 billion, making it the largest IPO of a REIT and the year's fifth largest offering. Private equity remains active with Oaktree's retail REIT, STORE Capital. Cnova became the most heavily discounted IPO for a company of its size when the online retailer priced 47% below the midpoint. Adama Agricultural Solutions refused to slash its valuation and instead postponed its $400 million IPO.
Supercharged charburgers: Habit up 103%
The Habit Restaurants (HABT), known for its award-winning charburgers, was the week's only IPO to price above its range and closed Friday up 100%. Habit offers investors their first chance to own a piece of the fast-growing better burger market, which it shares with Five Guys, Shake Shack, Smashburger and In-N-Out. With 50% sales growth, investors appear to have an appetite for high growth restaurants; Habit's successful offering follows 2014 IPOs Zoe's Kitchen (ZOES; up 118%) and El Pollo Loco (LOCO; +88%). Like Loco, Habit plans to aggressively expand outside of California. That scenario could justify its high multiple (5.6x LTM sales, 45x LTM EBITDA), though brand appeal likely fueled some of the fire. The stock pulled back on Friday, however, and investors should remember hot restaurant IPOs that have lost momentum in the past (NDLS, PBPB).
Second Sight sees double
Second Sight Medical Products became the year's sixth IPO to double on its first day of trading. Its implant is the only FDA-approved implant for total blindness, just as the previous IPO to jump 100% on its first day, ReWalk Robotics (RWLK), is the only approved device for paraplegia. Backed by the Chairman and CEO of MannKind (MNKD) Alfred Mann, Second Sight's product restores partial vision in patients with an uncommon eye disease, but could one day be used for all causes of blindness. Aside from that jackpot potential, the stock included certain incentive for long term holders and it ended the week up 124%.
Own a New York skyscraper: the largest REIT IPO
Two real estate investment trusts went public this week, bringing the year's total to 5 - one fourth the volume of last year. Paramount Group (PGRE), which owns 12 premier office buildings in New York, Washington, D.C. and San Francisco, priced at the midpoint to become the largest REIT IPO. Its relatively high debt and low yield of about 2% is offset by the scarcity value of its buildings, combined with growth potential from pricing lease-ups.
STORE Capital (STOR), a REIT owned by Oaktree Capital (OAK) with 850 retail properties (Applebee's, Popeyes, Ashley Furniture), raised $509 million when it priced above the midpoint. The company went public with about a 5% yield, which it will grow through acquisitions. Investors may have set store on STORE's management team, who have succeeded at leading other retail REITs.
Cnova IPO has largest valuation cut for a company its size
Cnova (CNV), a French and Brazilian e-commerce discounter spun out of retail giant Casino, priced its IPO 47% below the midpoint, an unprecedented valuation cut for a its size ($3.1 billion at the offering). The last IPO with a market cap of at least $2 billion to price so far below the range was Google in 2004, when it priced 30% below the midpoint due to its unconventional dutch auction. Its discount appeared appropriate, as Cnova gained 9% by Friday. Like many e-commerce companies, Cnova will rely on margin expansion going forward, which it plans to achieve by growing its third-party marketplace.
Neff and eHi: The rent was too darn high
The week's two rental companies traded failed to close above the offer price. eHi Car Services (EHIC), which owns a rental fleet of 18,000 vehicles, was the first IPO since Alibaba (BABA) to tap into the Chinese economy. The company stands to benefit from a large and fragmented car rental market in China as well as partnerships with shareholders Enterprise and Ctrip, but allegations over fraud may have kept some investors away. Neff (NEFF), a heavy equipment rental company, was delisted from the NYSE in 2001, failed to go public in 2006, and was acquired out of bankruptcy in 2010. It priced 29% below the midpoint and ended the day down 1%. It has succeeded in raising rental rates on its bulldozers, forklifts and excavators as the construction industry rebounds, but the company has significant debt due to over $500 million worth of distributions to owner Wayzata.
Like Neff, Peak Resorts (SKIS) carries high debt and previously attempted an IPO years ago. Since then, the company began operating one more mountain, but still generates most of its revenue from Mount Snow in VT and Attitash in NH. It began trading Friday with a 6% yield and ended the day down 5%. The year's other ski resort operator, Intrawest (SNOW), trades about 15% below its IPO price.
Fat Reduction biotech falls; cannot get up by Friday
Neothetics (NEOT), the week's only biotech, priced at the midpoint but fell 20% below its offer price after it dropped 14% on its debut, a worse first day return than 95% of 2014 IPOs. Backed by Domain Associates and Alta Partners, the company is developing an injectable belly fat reduction therapy based on the approved drug in GlaxoSmithKline's Advair asthma inhalers. While its drug would be less invasive than liposuction, Neothetics has just one meaningful product candidate and faces challenges to its patents. 2014 peer Revance (RVNC) traded as high as 140% above its offer price in March but is now up just 3%.
| IPO pricings (week of November 17, 2014) | |||||
| Company (Ticker) | Business | Deal Size ($mm) | IPO Price vs. Midpoint | First-day pop | Return as of 11/14 |
| Second Sight Medical Products (EYES) | Retinal implant maker | $32 | 0% | 122% | 135% |
| Habit Restaurants (HABT) | "Better burger" chain | $90 | 20% | 120% | 103% |
| Cnova (CNV) | French/Brazilian retailer | $188 | -47% | 2% | 9% |
| STORE Capital (STOR) | Oaktree-backed retail REIT | $509 | 3% | 5% | 7% |
| Paramount Group (PGRE) | Skyscraper office REIT | $2,293 | 0% | 4% | 5% |
| eHi Car Services (EHIC) | China car rental services | $120 | -8% | -3% | 0% |
| Neff (NEFF) | Heavy equipment lessor | $157 | -29% | -1% | -1% |
| Peak Resorts (SKIS) | 13 ski resorts | $90 | -10% | -5% | -5% |
| Neothetics (NEOT) | Biotech: belly fat reduction | $65 | 0% | -14% | -20% |
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IPO Market snapshot
So far this year, 261 IPOs have raised about $82 billion, averaging a first-day pop of 13%. The IPO market will slow down during Thanksgiving week and the week after, before it roars back in a mid-December rush. The Renaissance IPO Index, a market cap weighted basket of newly public companies designed to represent the US IPO market, has gained 10% year-to-date. Renaissance Capital's IPO ETF tracks the index, and its top holdings include Alibaba (BABA), Zoetis (ZTS), Twitter (TWTR), Hilton (HLT) and Workday (WDAY).
