Seven deals are on the IPO calendar to raise a combined $1.6 billion in the week ahead. Chinese logistics provider Best leads the pack with an $869 million offering (the largest IPO of Q3), followed by leading Latin American online travel agency Despegar.com, which is expected to raise $313 million. September filings are on pace with last year, pointing to a fairly active fall.
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Best (BSTI), backed by Alibaba, is China's fastest-growing delivery company, nearly tripling revenue in the past three years to $1.4 billion in 2016, and emerging as the #5 player in express delivery. Despite achieving a similar scale to its peer average, gross margins (-0.1%) are well below competitors and the company remains unprofitable. While Alibaba's year-to-date gain of 102% shows investors' bullish view of the Chinese e-commerce sector, delivery peer ZTO Express (ZTO) still trades well below its October 2016 IPO price.
Despegar.com (DESP), backed by Tiger Global, Expedia and General Atlantic, is a leader in the highly-fragmented Latin American OTA market (11% share). A mix shift towards hotels & packages should improve growth & margin expansion, although the business model remains largely unproven. Ex-LatAm hotel inventory is provided exclusively by related-party Expedia, and insiders plan to sell $101 million (32% of the deal) on the offering.
Secoo Holding (SECO), backed by IDG Funds and Ping An Ventures, is a leading Chinese e-commerce company for pre-owned luxury goods. Competition in China's online luxury market has been intensifying with local e-commerce giants such as Alibaba and JD.com also stepping up their presence. During the 1H17, gross merchandise value jumped 51% to $284 million, driven by higher orders from mobile applications (84% of GMV) while sales grew 30% to $199 million. Operating income turned positive to $8 million (4% margin), from -$11 million (-7% margin).
Zai Lab (ZLAB), led by highly-regarded Chinese scientist Samantha Du, is positioning itself as the go-to partner for western pharmas developing late-stage products in China. The company has multiple late-stage candidates and a broad pipeline of both in-licensed products and its own drug discovery operations, and benefits from the fact that China gives regulatory preference to domestic biotechs. However, drug reimbursement is uncertain and commercial health insurance is limited. The company has raised $165 million to date from marquee biotech investors, and insiders intend to purchase $30 million (30%) of the deal.
Oasis Midstream Partners LP (OMP), spun out of Oasis Petroleum (NYSE: OAS), is an MLP formed to own natural gas and oil logistics assets in the Williston Basin. The company generates substantially all of its revenue through 15-year fixed-fee contracts for Oasis. Growth will be dependent on external acquisitions and drop-downs from its sponsor, in addition to acreage developed by Oasis in the Williston Basin. The company intends to distribute $1.50 per unit on an annualized basis (7.5% yield at $20 midpoint).
Pre-revenue diagnostics company Celcuity's (CELC) CELx HSF Test analyzes live tissue to identify sub types of HER2 breast cancer and is expected to complete its first clinical trial in late 2018. No diagnostic companies have gone public in the US this year. There have been 12 diagnostics IPOs since 2014 and 11 of the 12 are below issue.
Micro-cap gene therapy company Krystal Biotech (KRYS) is an early-stage biotech focused on dermatological diseases. Its lead product candidate, KB103, is being developed to treat genetic disease dystrophic epidermolysis bullosa and is still in pre-clinical development. Management plans to file an IND application with the FDA in the 1Q18.
IPO Market Snapshot
The Renaissance IPO Indices are market cap weighted baskets of newly public companies. The Renaissance IPO Index is up 26.1% year-to-date, ahead of the S&P 500, which is up 11.7%. Renaissance Capital's IPO ETF (NYSE: IPO) tracks the index, and top ETF holdings include Ferrari (RACE) and First Data (FDC). The Renaissance International IPO Index is up 24.7% year-to-date, while the ACWX is up 19.9%. Renaissance Capital’s International IPO ETF (NYSE: IPOS) tracks the index, and top ETF holdings include ABN AMRO Group and Worldpay. To find out if this is the best ETF for you, visit our IPO Investing page.
