A heavily-discounted Atkore International opened in negative territory on Friday, but end-of-day buying brought it up to its offer price, while China Online Education traded up about 5% initially, before breaking issue minutes before the close. The week's two offerings continue a long streak of underwhelming first-day pops for 2016 IPOs, averaging just +5%. Thanks to explosive post-IPO trading among some biotechs, the average IPO has gained +18% after the first day, or +6% ex-biotech. June IPO activity appears stable as five companies joined the calendar, including Japanese messaging app LINE (LN); its $900+ million offering would make it the largest tech IPO since 2014.
Short circuit: Atkore International prices down and ends flat
Atkore International (ATKR) priced its IPO at $16, a whopping 24% below the midpoint, in order to raise $192 million for selling shareholder CD&R, which bought the company in 2010. Atkore has the #1 or #2 market share for its core products - metal tubing for electrical circuitry - and saw its 1Q16 adj. EBITDA margin double to more than 16% thanks to lower costs of raw materials. Yet the proposed valuation met resistance. Investors likely questioned the long-term prospects of its margin expansion, and there are plenty of public companies that benefit from the rebounding US commercial construction sector and don't have Atkore's debt ($632 million; 3.1x LTM adj. EBITDA).
We don't need no education: High-growth Chinese tech company breaks issue
China Online Education (COE), also known as 51Talk, priced at the $19 midpoint to raise $46 million, while venture backers DCM and Sequoia pitched in an extra $20 million. The company ended the day down 0.1%, a generally rare occurrence for US IPOs out of China. 51Talk offers an online platform where Chinese students receive one-on-one English tutoring, an almost $3 billion industry growing at a 54% CAGR. The unprofitable company has grown rapidly - billings spiked +191% to $24 million in the 1Q16 - but it has spent heavily on marketing in order to do so. While the company plans to continue its meteoric growth while also achieving profitability, investors may have decided to see whether 51Talk can also walk the walk.
| IPO Pricings Week of June 6th, 2016 | ||||
| Issuer Business |
Deal Size ($mm) |
Market Cap ($mm) |
Price vs. midpoint |
Return at 6/10 |
| Atkore International (ATKR) |
$192 | $1,055 | -24% | 0% |
| Sells electrical circuitry raceways and metal frames used in commercial construction. |
||||
| China Online Education (COE) | $46 | $407 | 0% | -0.1% |
| China-based online English language education platform. |
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IPO Pipeline Update: Struggling tech IPO market gets a lifeLINE
Looking to raise about $928 million in July, Japanese messaging app LINE (LN) submitted its long-awaited IPO filing with the SEC on Friday. IPO investors get their first look at what could be the largest US tech IPO since 2014. LINE highlighted its potential $10 billion valuation in 2014, but now aims for about $6.1 billion as the company attempts to balance a deceleration in sales growth (+40% to $1.1 billion in 2015) with a move toward profitability (operating income swung positive in the 1Q16).
In addition to LINE's filing, Hepatitis C biotech Kadmon Holdings (KDMN) filed for a $115 million IPO. Software provider PointClickCare (PCLK) showed that tech is on the move; the company updated financials in its first new filing since October.
IPO Market Snapshot
The Renaissance IPO Indices are market cap weighted baskets of newly public companies. The Renaissance IPO Index is down 6% year-to-date, while the S&P 500 is up 3%. Renaissance Capital's IPO ETF (NYSE: IPO) tracks the index, and top ETF holdings include Alibaba (BABA), Synchrony Financial (SYF) and Citizens Financial Group (CFG). The Renaissance International IPO Index is down 3% year-to-date, compared to -0.1% for ACWX. Renaissance Capital’s International IPO ETF (NYSE: IPOS) tracks the index, and top ETF holdings include NN Group and Aena S.A. To find out if this is the best ETF for you, visit our IPO Investing page.
