Fast-growing and highly-profitable pet food maker Blue Buffalo could be top dog this week.
Five businesses and one blank check company are on the IPO calendar to raise over $1 billion. The third quarter has already seen more consumer IPOs than the first quarter, and Blue Buffalo will be the third. Yet the company's impressive margins and market dominance put it more in league with Fitbit (FIT; 136%) than last week's consumer deals. The week ahead may also have two relatively small biotech IPOs, a single-building REIT and a niche online lender. Last week, the IPO market appeared to get back on track as year-to-date IPO returns rose to +18% and the VIX volatility index fell by 40% from its recent peak.
How pets get BUFF
Blue Buffalo Pet Products (BUFF) should raise more capital (for selling shareholders) and command a higher valuation than the other four IPOs this week combined. Consumers are rapidly choosing to buy "wholesome natural" pet food, and Blue Buffalo is the leader with one-third of the market, or about 6% of the overall pet food market. It has maintained double-digit growth and 20%+ operating margins as annual sales approach $1 billion. However, pet food manufacturing is a dog eat dog industry: Mars and J.M. Smucker have gobbled up competitors while Nestle and 2014 IPO Freshpet (FRPT) have introduced competitive products. Still, Blue Buffalo should be this week's IPO to watch.
Money does grow on trees: IPO from online lender Live Oak
Live Oak Bancshares (LOB) plans to raise $68 million, a below-average float given its $577 million market cap. The branchless niche lender provides has carved out a niche space, making and then selling loans to small businesses in a select group of industries, including veterinarians, dental practices and farmers. Backed by Wellington Management, it has achieved operating efficiencies through its online model and technology platform, though the company has benefited greatly from a government lending program and it no longer has the exclusive right to its licensed technology platform.
A strategy for ADHD meds that is not hard to swallow
Neos Therapeutics (NEOS) is set to raise $60 million at a market cap of over $200 million. The drug delivery biotech is in the final stages of approval for three easily-swallowed versions of existing ADHD medications like Adderall and Concerta. The market is large, but highly competitive with several generics available. Its IPO should benefit from $20 million insider buying (33% of the deal) from Deerfield and Presidio. Last week's oral drug reformulation biotech, Chiasma (CHMA), priced at the high end of the range and traded up 25%, while three more from 2015 (Collegium COLL; Kempharm KMPH; Cynapsus CYNA) trade 18%-68% above their IPO prices.
Own 49% of a Boston skyscraper
ETRE REIT LLC (ESSF) plans to float shares representing a 49% interest in State Street Financial Center, the global headquarters of State Street (NYSE: STT). The company targets a 5% annual yield - above most peers - though IPO investors may be turned off by its exposure to a single building leased to a single tenant.
A blank check and belated biotech
Industrial-focused blank check company Hennessy Capital Acquisition II (HCACU; not included in IPO stats) plans to raise $175 million this week. Daniel Hennessy's prior SPAC raised $100 million in January 2014 and acquired school bus maker Blue Bird (NASDAQ:BLBD) from Cerberus Capital in February 2015. Heart failure biotech BioCardia (BCDA) appears to be looking for buyers as the heart failure biotech pushed back its planned IPO from last week to the week ahead.
| Renaissance Capital's IPO Calendar - Week of July 20, 2015 | ||||
| Issuer Business |
Symbol Exchange |
Deal Size $mil |
Price Range Shares Filed |
Lead Manager(s) |
| Blue Buffalo Pet Products Wilton, CT |
BUFF NASDAQ |
$502 | $16 - $18 29,519,660 |
J.P. Morgan Citi |
| Largest maker of all natural dog and cat food in the US and Canada. | ||||
| Hennessy Capital Acquisition II Houston, TX |
HCACU NASDAQ |
$175 | $10 17,500,000 |
UBS Investment Bank Cantor Fitzgerald |
| Blank check company focused on industrial manufacturing businesses. | ||||
| ETRE REIT LLC New York, NY |
ESSF NASDAQ |
$173 | $15 11,500,000 |
Sandler O'Neill Evercore Partners |
| Formed to own an interest in State Street's headquarters building in Boston, MA. | ||||
| Live Oak Bancshares Wilmington, NC |
LOB NASDAQ |
$68 | $16 - $18 4,000,000 |
Sandler O'Neill Keefe Bruyette Woods |
| Online lender for small businesses in niche industries across the US. | ||||
| Neos Therapeutics Grand Prairie, TX |
NEOS NASDAQ |
$60 | $14 - $16 4,000,000 |
UBS Investment Bank BMO Capital Markets |
| Developing easily swallowed formulations of ADHD treatments. | ||||
| BioCardia San Carlos, CA |
BCDA NASDAQ |
$50 | $12 - $14 3,846,154 |
Cantor Fitzgerald Roth Capital |
| Developing regenerative medicine for heart failure based a patient's own bone marrow. | ||||
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IPO pipeline update: Just one initial filing
Just one company submitted an initial filing last week, compared to an average of about 10 per week in June. The broader market's rebound should prompt an uptick in new filings, but fewer companies typically file in July due to an observed break in the IPO market during August. Last year, July was the slowest month for filings and August was the slowest month for IPOs. UTAC Holdings (UTAC), a "covenant-lite" LBO from TPG and Gores Holdings (GRSHU), a blank check company backed by PE firm The Gores Group, filed to raise $400 million this past week.
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 two weeks ago, 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.
