Four IPOs raised $613 million in the past week, 11% more than expected thanks to two high-growth consumer and tech IPOs.
IPO investors have been discerning: two IPOs priced above the range, one yield play came in at its midpoint and one medical device company went public at the low end of the range. We are also seeing a broader variety of sectors, though health care continues to dominate the IPO market (44% of deals year-to-date, 38% at this point last year) while tech activity remains below average (14% vs. 27%).
The average post-first day return for 2015 IPOs reached 7.1%, it's highest level yet, while average total return is nearly 21%, close to its highest point. Recent IPOs have fared even better for retail investors, returning nearly 10% after the first day (21% total). Six US IPOs are on the calendar for next week, including another high-growth consumer deal, Wingstop (WING).
DAVIDsTEA boils over
DAVIDsTEA (DTEA) earned the gratuitous use of capital letters in its name this week when the Canadian tea retailer priced 27% above the proposed midpoint and traded up 42%. None of the 13 retailer IPOs since 2014 trade below the offer price, and the group now averages +77%, led by Shake Shack (SHAK; +267%), Zoe's Kitchen (ZOES; +142%) and Dave & Buster's (PLAY; +110%). US competitor Teavana IPO'd in 2011 and gained 64% on its debut before it was bought by Starbucks the next year.
Value based care is valued higher: Evolent gains 11%
Evolent Health (EVH) priced above the range and gained 11% on its first day of trading. The last health care data analytics IPO, Inovalon (INOV; +3%), priced above the range and now has a 3% gain, while health care advisor Press Ganey (PGND) priced above the range and is up just 6%. Formed by UPMC and The Advisory Board (NASDAQ: ABCO) with backing from TPG, Evolent grew revenue by 85% to $37 million in the first quarter and boasts long-term contracts with major health care providers, though it projects near-term losses and has a concentrated customer base.
Polyp finder pops 13%
EndoChoice Holdings (EVH) proved to be a good choice for investors. The enhanced endoscopy system company popped 13% (the historical average for IPOs) on its first day after pricing at the low end of the range. Medical products IPOs have not been warmly received this year - seven have postponed or withdrawn this year and none of the last 8 non-biotech health care IPOs managed to pop 10% or more. EndoChoice's most promising medical equipment is not yet widely adopted, but its slower growth medical supplies business counts one-third of GI practices in the US as customers. Its larger than most other medical device IPOs, with $64 million in LTM sales and 21% growth in the 1Q15. Its experienced CEO, lead underwriter J.P. Morgan and primary shareholder Sequoia Capital may also have driven interest in the deal.
PennTex Midstream Partners LP (PTXP) raised $225 million as the year's second midstream MLP to go public after Columbia Pipeline Partners LP (CPPL; +16%) in February. PennTex, an NGP-backed operator of natural gas processing assets in Louisiana, came to market with a 5.5% annual yield then fell 2.6% on its debut, the same first-day return as the last yield IPO, Fortress Transportation LLC (FTAI). PennTex's assets lack a track record, and the MLP will initially derive nearly all of its revenue from NGP's Memorial Resource Development (MRD; +1% from June '14 IPO). The year's seven yield oil and gas IPOs average just +4%: four are have broken issue and Columbia and EQT GP (EQP) lead at +16%.
| IPO pricings (week of June 1, 2015) | |||||
| Company (Ticker) | Business | Deal size ($mm) | IPO price vs. midpoint | 1st-day pop | Return at 6/5 |
| DAVIDsTEA (DTEA) | High growth tea retailer | $97 | 27% | 42% | 42% |
| EndoChoice Holdings (GI) | Better endoscopy systems | $95 | -6% | 13% | 13% |
| Evolent Health (EVH) |
Hospital software platform | $196 | 13% | 11% | 11% |
| PennTex Midstream (PTXP) | Midstream MLP for MRD | $225 | 0% | -3% | -2% |
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IPO market snapshot
The Renaissance IPO Indices are market cap weighted baskets of newly public companies. The Renaissance IPO Index has traded up 8% year-to-date, compared to 2% for the S&P 500. Renaissance Capital's IPO ETF (NYSE: IPO) tracks the index, and top ETF holdings include Alibaba (BABA), Hilton Worldwide (HLT) and Twitter (TWTR). The Renaissance International IPO Index has traded up 12% year-to-date, compared to 6% for the ACWX. Renaissance Capital’s International IPO ETF (NYSE: IPOS) tracks the index, and top ETF Holdings include Deutsche Annington and Altice. To find out if this is the best ETF for you, visit our IPO Investing page.
