Global Blood Therapeutics became the fifth IPO of 2015 to pop more than 100% on its first day.
Year-to-date, 130 IPOs have raised $22 billion, or 31% fewer IPOs than last year and 45% less capital. Even with six postponements this month, nine IPOs priced in the US - the same as August 2014.
2015 IPOs have returned 10.5% on average, down for the fourth week in a row. After an average first-day pop of 16%, IPOs have an aftermarket loss of over 4%. Poor aftermarket performance typically leads to a challenging environment for IPOs as investors push hard on valuations.
Wall Street's annual August vacation means that the IPO calendar is almost empty. Assuming equity markets can withstand the approaching rate hike and IPO performance stops its four-week decline, initial filings should pick up in the coming weeks as companies prepare for post-Labor Day offerings.
Hot blooded: Global Blood Therapeutics pops 116% on debut
Sickle cell disease biotech Global Blood Therapeutics priced above the range and gained 116% on its first day. It then fell by over 10% but rallied on Friday to end the week up 128%, making it the year's fourth-best IPO. As we mentioned in the Week Ahead blog post, the company checked off all the major boxes for a hot biotech IPO; i.e. promising early results, a $500+ million market cap and well-known VC/crossover backers (Third Rock, Fidelity, Wellington, RA Capital). Unusual for a biotech, Global Blood also featured Morgan Stanley and Goldman Sachs as lead underwriters.
Laughing all the way to the investment bank: Houlihan Lokey up 8%
Houlihan Lokey (HLI) raised 26% less than it had intended as the investment bank offered fewer shares below the proposed range. Its stock finished the week up 8%. Peers trade at a fairly tight range of multiples, and Houlihan is currently valued at a discount on P/E, which may reflect its high compensation expense ratio. The investment bank has benefited from high M&A activity in the mid-cap space.
Specialty property and casualty insurance company Conifer Holdings (CNFR) priced a downsized IPO below its range and finished the week at its offer price. The company has rapidly increased its written premiums, though its return on equity remains below peers.
More IPOs postpone
GC Aesthetics (GCAA) had originally been scheduled to price last week, but officially postponed its proposed $75 million US IPO. A lead provider of breast implants in Latin America and Europe, the company has successfully pivoted from its predecessors' bankruptcy but still has relatively high debt and a gross margin below its peers. Microcap projector maker Boxlight (BOXL) also postponed. Two or more IPOs have postponed in each of the past four weeks.
Leaving the IPO pipeline for good, Brazil's third-largest airline Azul (AZUL.RC), containership owner Poseidon Containers Holdings (PCON) and Expro Oilfield Services (XPRO.RC) all withdrew their filings. One of the largest IPOs on file, PE-backed SunGard (SDS.RC), hammered out plans to be acquired by FIS for $9.1 billion.
Update from last week: Amplify slides further, top biotechs rise higher
Last week, Amplify Snack Brands (BETR) priced above the range and fell 10% on its debut. It slid further this week and is now down almost 20% below its offer price - below the original midpoint. Despite faster growth and superior margins, Amplify is valued at less than 25x 2016 P/E compared to about 35x for its closest peers. High-growth consumer companies had been among the best-performing IPOs this year. Sunrun is down 30% from its IPO price. Highly-volatile preclinical cannabis biotech Zynerba Pharma (ZYNE) gained 16% on its first day, finished last week up 75%, and is now up about 150% from its IPO price. Peanut allergy biotech Aimmune Therapeutics (AIMT) traded up about 20 percentage points this week to 63%. After ending flat on its first day, Planet Fitness (PLNT) finished last week up 16% and then traded up slightly.
SPAC attack: IPO investors write more managers a blank check
Even as companies with historical operations struggled to find buyers, two blank check companies (SPACs) priced this past week. While Alibaba's (BABA) stock hit an all-time low this week, a blank check company focused on e-commerce in China, E-compass Acquisition (ECACU), managed to raise $40 million. Gores Holdings (GRSHU) raised $350 million on Thursday, far above the historical median of about $120 million. So far this year, 14 SPACs have raised $2.0 billion. This is the highest level of activity since 2007, with an entire quarter left to go. By this point last year, just 6 SPACs had raised $1.1 billion. Two $400 million blank check companies also submitted initial filings on Thursday - one with a history of successful acquisitions (Double Eagle Acquisition; EAGLU) and one backed by TPG Capital (Pace Holdings; PACEU).
| 3 IPOs during the week of August 10, 2015 | |||||
| Company (Ticker) | Business | Deal size ($mm) | IPO price vs. midpoint | 1st-day pop | Return at 8/14 |
| Global Blood Therapeutics (GBT) | Biotech: sickle cell disease | $120 | 18% | 116% | 128% |
| Houlihan Lokey (HLLI) | Mid-cap investment bank | $221 | -9% | 7% | 8% |
| Conifer Holdings (CNFR) | Specialty insurer | $33 | -13% | 1% | 0% |
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Three new filings: Is Pure Storage the beginning of a unicorn stampede?
Three IPOs joined the pipeline this past week, most notably "unicorn" Pure Storage (PSTG). It has raised over $500 million from top VCs and funds, including a $225 million round in April 2014 that valued it at over $3 billion. Revenue increased from $6 million in 2012 to $175 million in 2014, making it one of the fastest-growing technology IPOs. Its sales growth is matched only by its massive losses; Pure Storage has an accumulated deficit of nearly $400 million. Other filers include biotech Edge Therapeutics (EDGE) and medical device company Penumbra (PEN). Both focus on ruptured blood vessels in the brain and are looking to raise $115 million.
IPO Market Snapshot
The Renaissance IPO Indices are market cap weighted baskets of newly public companies. The Renaissance IPO Index has traded up 0.5% year-to-date, now below the S&P 500's 1.6% gain due to the recent decline of Alibaba and Twitter. 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 3.5% year-to-date, compared to 0.8% for the ACWX. Renaissance Capital’s International IPO ETF (NYSE: IPOS) tracks the index, and top ETF Holdings include Recruit Holdings and Altice. To find out if this is the best ETF for you, visit our IPO Investing page.
