Two-thirds of initial public offerings in the past three months have priced below the range, making intense pricing pressure the new normal for the IPO market. Several companies appear to be betting that “the future will be better tomorrow” as IPOs postpone or simply wait in the pipeline until 2016, rather than slash their valuations like Square (SQ) and others this past week.
From Hero to Zero
Truck Hero (TRUK) had planned to raise $200 million at a modest discount to its peer average on EBITDA. However, the company’s CEO cited an unwillingness to sell shares for less than it is worth and postponed. PE sponsor TA Associates had planned to sell after investing only last year, similar to its previous IPO Amplify Snack Brands (BETR), now down 33% from the offer price.
COM IPO taken offline
congatec (CONG) pushed back its $60 million IPO. The German “computer-on-modules” company is a leader in its small but fast-growing market, but its low gross margins and high proposed earnings multiple likely had investors asking for more upside. Insiders had intended to sell 23% of the deal, another negative data point. The last Internet of Things semiconductor IPO, Adesto Technologies (IOTS), slashed its price by over 50% to get done, and is now up 11%.
An oil and gas flame out
Noble Midstream Partners LP (NBLX) had planned to raise $250 million by offering a 6.3% yield, but the pipelines carve-out of Noble Energy postponed amid weakness in the sector. 2015 energy IPOs have underperformed all other sectors, explaining why there hasn’t been an oil and gas offering since June. All 10 of the year’s MLPs and yieldcos have returned double-digit losses, and the group average is -30%.
Valuations challenged across sectors: Take it or leave
32 IPOs have postponed this year (19% of the year-to-date total), compared to 34 at this point last year (13%). In part due to unimpressive IPO returns, companies from a broad range sectors and geographies have recently been casualties of an IPO market that demands a healthy discount to publicly-traded peers. Along with the energy, auto and tech IPOs that did not make it this past week, recent postponements have come from various sectors such as biotech (GenSight; GNST), finance (loanDepot; LDI), retail (Albertsons; ABS) and telecom (Digicel; DCEL). The last two debt pay-down stories join other high-profile no-shows like Univision (UVN), Petco (PETC.RC), McGraw Hill Education (MHED) and Neiman Marcus (NMG).
Of note, two high-growth IPOs expected to come in the fourth quarter were acquired earlier this week. Craft brewer Ballast Point (PINT) was bought by Constellation Brands for $1 billion. Medical device maker SurgiQuest (SRGQ.RC) was acquired by CONMED for $265 million. Acquisitions this year have trended slightly above 2014.
