Every dog has its day, and this week it was Blue Buffalo: the year's fifth-largest IPO surged over 30%.
All three initial public offerings this week raised more capital than expected as Blue Buffalo priced above its range while Neos and Live Oak offered additional shares. Each had double-digit returns. Signs of investor discipline also surfaced as two companies postponed IPOs this week.
Recent offerings have produced some of the strongest first day returns of 2015. IPOs over the past 30 days have a median first day gain of +26%, compared to a historical average of about +13%. This enthusiasm could revert to the mean, however, as post-IPO follow-through is almost -3% on average.
You're my boy, Blue! All-natural pet food maker is top dog
Blue Buffalo Pet Products (BUFF) priced 18% above the midpoint and traded up 36% on its first day. Blue Buffalo boasts a dominant position in the fastest-growing segment of pet food, as well as impressive gross margins (40%) for the industry. Investors appeared to take no issue with insiders cashing out (IPO 100% sold by PE firm Invus and founders). The next fast-growing, high-margin consumer packaged goods IPO was added to the calendar on Friday: Amplify Snack Brands (BETR) is set to raise $225 million //in early August//.
Investors pay up and pay attention to ADHD biotech
Neos Therapeutics (NEOS) gained 30% on its first day and continued to trade up, making it the week's best-performing IPO. Investors likely felt confident purchasing shares alongside well-respected health care investor Deerfield Management. Neos is developing easily swallowed versions of Ritalin, Adderall and Concerta, and plans to have three drug candidates submitted to the FDA for final approval by the end of the third quarter. Neos' positive trading follows that of recent late-stage drug delivery biotechs Collegium (COLL) and KemPharm (KMPH), both up 60% from the offer price.
Backed by Wellington Management, Live Oak Bancshares (LOB) priced its upsized IPO at the midpoint and traded up 13% by Friday. The niche lender (veterinarians, dentists, farmers, etc.) has an online model that lends itself to better operating margins.
Two deals postpone: Skyscraper IPO scrapped and heart failure biotech skips a beat
For the second time, ETRE REIT (ESSF) postponed an IPO of a single-building REIT. Getting investors to buy into a non-growth story is a tall order, even for a 100% leased Class A Boston skyscraper offering a 5.5% annual yield. BioCardia (BCDA) a heart failure biotech backed by cardiologists and founded by the CEO of CareDx (CDNA), officially postponed its $50 million offering.
| 3 IPOs during the week of July 20, 2015 | |||||
| Company (Ticker) | Business | Deal size ($mm) | IPO price vs. midpoint | 1st-day pop | Return at 7/24 |
| Neos Therapeutics (NEOS) | Easily swallowed ADHD meds | $72 | 0% | 30% | 37% |
| Blue Buffalo Pet Products (BUFF) | All natural pet food | $677 | 18% | 36% | 34% |
| Live Oak Bancshares (LOB) | Niche small business lender | $82 | 0% | 12% | 13% |
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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 about 7% year-to-date, compared to 1% 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 6% gain year-to-date, compared to 1% 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.
