The IPO market saw sevens this past week.
Seven IPOs raised $700 million. Cybersecurity firm Rapid7 spiked 56% on its offering, while cancer biotech ProNAi Therapeutics (+76%) had the seventh-best debut of 2015 and home phone provider Ooma had the seventh-worst.
Small deal sizes - each under $150 million - became bigger as five companies priced above the midpoint. Just one ended the below its offer price and the group averaged +24%. Helped by some resolution to the Greek credit crisis, US markets appeared back on track: the NASDAQ Composite gained 4% this week (hitting a record high) while the VIX volatility index declined 40% from its recent spike. 2015 IPO returns now stand at about +18%, up from +12% just two weeks ago. This could open the gate for IPO launches next week and a surge of offerings at the end of July. However, investors also showed signs of discipline as consumer-focused telecom Ooma priced below the range and then fell 16%. One biotech struggled to get done, pushing its IPO to next week. So far this year, 112 IPOs have raised $19 billion - 28% fewer deals than this point in 2014 but 18% more than 2013.
Cybersecurity firm Rapid7 secures 58% gain
Rapid7 (RPD) priced above its proposed range at $16 and rapidly gained 58% in Friday trading. Despite a history (and future) of heavy losses, the cybersecurity firm came public with major tailwinds and a reasonable valuation discount. Close peer CyberArk Software (CYBR) is up 255% from its September IPO. Investors may have been comfortable purchasing shares alongside Technology Crossover Ventures, though it and Bain Capital last invested at $6.33 in December. Still, organizations have been under intense scrutiny to prevent data breaches.
IPO investors go ProNAi: biotech up 76%
As mentioned in our Week Ahead blog post, the largest 25% of recent biotech IPOs by market cap have averaged an 80% first-day pop. ProNAi Therapeutics (DNAI) priced above the range to command a market cap of over $500 million, then gained 81% on its debut. The DNA interference biotech has shown promising results in early trials, and it is possible the approach may be used in 60% of cases in the top 10 cancers. Well-regarded health care investors OrbiMed and RA Capital bought shares on the IPO. ProNAi has cons, too: competition is intense and approval of the company's only drug candidate would be years away, if at all. Last year's hot DNA interference biotech, Dicerna (DRNA; also backed by RA Capital) flew up 207% on its first day but now trades below the offer price.
Chiasma (CHMA), also a relatively large biotech with an IPO market cap of $450 million, priced above its range and traded up 25%. It is developing oral therapies to replace painful injections. Backed by MPM Capital, Fidelity and Abingworth, insiders bought over a quarter of the offering.
Potentially the largest biotech ever to go public joined the IPO calendar this week. NantKwest (NK) has targeted a $2.2 billion diluted valuation, but getting shares may be difficult as 37% of the IPO is already covered by insiders, leaving just 4% of the company's market cap available for purchase.
Ollie's Bargain Outlet's "good stuff cheap" included its stock
Ollie's Bargain Outlet Holdings (OLLI), the week's largest IPO and highest valuation, priced above the range and traded up 25%. LBO'd by CCMP Capital in 2012, it operates 187 stores in the Eastern US and plans to expand further south. With a strong loyalty program ("Ollie's Army"), the discount retail chain offered investors attractive comp growth and enough cash flow to pay down its $242 million of debt (2.9x LTM adj. EBITDA) going forward.
Ooma drops the call: phone service provider down 16%
Ooma (OOMA), a consumer-focused home phone service provider, introduces its service as a "unique hybrid SaaS platform" with a "proprietary cloud" consisting of "mobile applications" that "enable the Internet of Things." Despite this claim, investors were likely turned off by Ooma's concentration in the residential home phone space, which has seen its share of disappointments (magicJack is down 50% over the past year). User adds have also been slower while sales and marketing expenses have risen. With a 16% loss on its first day, Ooma had the seventh-worst debut of 2015.
MasterCraft's proposed turnaround strategy holds water
MasterCraft (MCFT) priced at the high end of the range and traded up 6%. The company has cleaned its balance sheet and improved margins since its near-bankruptcy in 2009, when PE firm Wayzata came in. It has also begun executed a new strategy focused on a cheaper, entry-level power boat ($50,000-$70,000). It competes closely with 2014 IPO Malibu Boats (MBUU), down 12% over the past three months.
Chinese wealth manager Jupai manages to price its IPO, then trades flat
Like the Shanghai stock market, Jupai (JP) swung up and then down. It priced at the low end, traded up 11% on Thursday and broke issue on Friday before settling above the offer price. Backed by E-House (China) Holdings (NYSE: EJ), Jupai generates revenue by connecting high net worth individuals with various Chinese financial products, but also plans to grow its asset management business. Jupai targets a massive market in an uncertain time for Chinese equities.
Heart failure biotech BioCardia (BCDA) could not get investors pumped for its proposed $50 million IPO, but it will try again next week.
| 7 IPOs during the week of July 13, 2015 | |||||
| Company (Ticker) | Business | Deal size ($mm) | IPO price vs. midpoint | 1st-day pop | Return at 7/17 |
| ProNAi Therapeutics (DNAI) | Biotech: Cancer DNA interference | $138 | 13% | 81% | 76% |
| Rapid7 (RPD) | Cybersecurity software | $103 | 14% | 58% | 58% |
| Chiasma (CHMA) | Biotech: Oral versions of injected drugs | $102 | 14% | 25% | 25% |
| Ollie's Bargain Outlet Holdings (OLLI) | Discount US retailer | $143 | 14% | 32% | 25% |
| MasterCraft (MCFT) | Power boat manufacturer | $91 | 7% | 6% | 6% |
| Jupai (JP) | Chinese wealth management | $53 | -9% | 11% | 0% |
| Ooma (OOMA) | Internet-based phone service | $65 | -24% | -16% | -16% |
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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 7% year-to-date, compared to 3% for the S&P 500. Renaissance Capital's IPO ETF (NYSE: IPO) tracks the index, and top ETF holdings include Alibaba (BABA), Twitter (TWTR) and Hilton Worldwide (HLT). After giving up all of its returns last week, the Renaissance International IPO Index is back up to a 7% gain year-to-date, compared to 4% for the ACWX. Renaissance Capital’s International IPO ETF (NYSE: IPOS) tracks the index, and top ETF Holdings include Altice and Recruit Holdings. To find out if this is the best ETF for you, visit our IPO Investing page.
