IPO investors are beginning to see pre-IPO valuations.
A biotech and a semiconductor company went public this past week after slashing their proposed valuations. While health care has remained strong all year, more technology could be on the way.
In the past 30 days, 85% of IPOs have priced below the original range, and 55% traded down or flat on the first day. Positive aftermarket trading has resulted in an average gain of 5% for the group, compared to an average loss of 5% for all 2015 IPOs. Pricing pressure appears to be paying off, but it may not be enough to reverse the trend. Next week could see as many as six IPOs, including two new biotechs and a telecom infrastructure company, along with a bank and two Chinese manufacturers that had previously made IPO attempts.
When the chips are down, Adesto gains 19%
Flash memory chip provider Adesto Technologies (IOTS) saw its valuation chipped down to $81 million from its originally proposed market cap of $170 million. Insiders also added a $3 million indication on the $25 million IPO. Adesto went public at $5 per share, below the average cost basis of insiders. It traded up 18% on its debut and finished the week up 19%. The company claims that its next-generation memory products extend the battery life of Internet of Things devices, but declining sales and gross margins likely led investor pushback.
Cut to the heart: MyoKardia drops valuation and trades up 2%
MyoKardia (MYOK) cut its proposed valuation by 36% and raised $54 million at a market cap of $273 million. Instead of the proposed $16 price, it came public at $10, just above its April 2015 crossover round. The company gained 5% on the first day, but traded down a 2% gain by week-end. Formed by Third Rock Ventures and backed by Sanofi and Fidelity, MyoKardia in a Phase 1 trial for genetic defects in cardiac muscle contraction. Sanofi bought shares on the IPO, but the company had just one clinical candidate and the biotech sector has not fully recovered from its September sell-off. Another Third Rock/Sanofi/Fidelity biotech, Voyager (VYGR), is scheduled for the week of November 9.
Pre-IPO fundraising has exploded in the past year, with private rounds for tech companies reportedly raising over ten times the capital of the public market. Biotechs, too, have increasingly IPO'd with large crossover funds behind them. However, capital raised in the private market could come under pressure if IPO investors refuse to pay an attractive premium to earlier rounds. Returns found in the current IPO market should weigh heavily on these funds' decisions.
Interactive Data acquired: Will LBOs IPO in the 4Q?
IDC (IDC) was on file for an IPO that could have raised $700 million, but on Monday the LBO'd financial data provider announced that it would be acquired by Intercontinental Exchange for $5.2 billion. It had reportedly been planning to move forward with its IPO until First Data's (FDC) lackluster debut. Highly-leveraged Caribbean wireless provider Digicel (DCEL) and grocery chain Albertsons (ABS) both postponed earlier this month, casting doubts over the timing of other high-profile LBOs in the IPO pipeline such as Neiman Marcus (NMG), Univision (UVN), McGraw-Hill Education (MHED) and Petco (PETC.RC).
| 2 IPOs during the week of October 26, 2015 | |||||
| Company (Ticker) | Business | Deal size ($mm) | IPO price vs. midpoint | 1st-day pop | Return at 10/30 |
| Adesto Technologies (IOTS) | Flash memory chips | $25 | -55% | 18% | 19% |
| MyoKardia (MYOK) | Biotech: Cardiomyopathies | $54 | -38% | 5% | 2% |
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IPO Market Snapshot
154 IPOs have raised $28.1 billion in 2015, but only 38% are trading above their IPO price. The Renaissance IPO Indices are market cap weighted baskets of newly public companies. The Renaissance IPO Index is down 5% 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). The Renaissance International IPO Index is down 3% year-to-date, in line with the ACWX. Renaissance Capital’s International IPO ETF (NYSE: IPOS) tracks the index, and top ETF Holdings include Recruit Holdings and Samsung C+T. To find out if this is the best ETF for you, visit our IPO Investing page.
