The IPO market will close out the third quarter with another active week: Seven deals are expected to raise $1.3 billion.
High-growth TV streaming platform Roku will be the only Silicon Valley technology IPO of the 3Q17, while chemicals maker PQ Group should be the quarter's largest deal and only LBO. The week should see a Chinese education company and three biotechs; all four have close peers with soaring stock prices. A micro-cap REIT could also price.
While 3Q17 IPO activity will come in below the prior year period, the IPO market has picked up steam heading into the 4Q. With a week left to go, September hit a 2-year high as the most active month for initial filings, with 24 deals piling into the US IPO pipeline. That, paired with a low VIX and strong returns (2017's 100 IPOs average a gain of 23%), should drive activity.
This week, watch for potential IPO launches from data center operator Switch (SWCH); health care companies OrthoPediatrics (KIDS), Rhythm Pharmaceuticals (RYTM) and Sol-Gel Technologies (SLGL); Argentina's Loma Negra (LOMA) and
Cañuelas Mill (MOLC); and energy MLPs BP Midstream LP (BPMP) and Howard Midstream LP (HMP).
| US IPO Calendar | ||||
| Issuer Business |
Symbol Exchange |
Deal Size($m) Market Cap($m) |
Price Range Shares Filed |
Bookrunners |
| RYB Education China |
RYB NYSE |
$133 $487 |
$16 - 18 7,800,000 |
Credit Suisse Morgan Stanley China International |
| Leading provider of early childhood education services in China. | ||||
| Roku Los Gatos, CA |
ROKU Nasdaq |
$204 $1,498 |
$12 - 14 15,668,000 |
Morgan Stanley Citi Allen & Company |
| Leading TV streaming platform in the US with over 5,000 channels. | ||||
| Deciphera Pharmaceuticals Waltham, MA |
DCPH Nasdaq |
$100 $543 |
$15 - 17 6,250,000 |
J.P. Morgan Piper Jaffray |
| Clinical-stage biotech developing kinase inhibitors for solid tumors. | ||||
| Nightstar Therapeutics United Kingdom |
NITE Nasdaq |
$75 $436 |
$13 - 15 5,360,000 |
Jefferies Leerink Partners BMO Capital |
| UK biotech developing gene therapies for rare retinal diseases. | ||||
| NuCana United Kingdom |
NCNA Nasdaq |
$100 $526 |
$14 - 16 6,667,000 |
Citi Jefferies Cowen & Company |
| UK biotech developing enhanced chemotherapies for resistant tumors. | ||||
| PQ Group Holdings Malvern, PA |
PQG NYSE |
$638 $2,857 |
$21 - 23 29,000,000 |
Morgan Stanley Goldman Sachs Citi |
| Global producer of catalysts and other inorganic chemicals. | ||||
| Gadsden Growth Properties Scottsdale, AZ |
GADS NYSE |
$35 $74 |
$9 - 11 3,500,000 |
National Securities |
| Newly-formed REIT focused on distressed retail and medical office real estate. | ||||
The public cord cutter: Will investors think outside the box?
Roku's (ROKU) easy-to-use set-top boxes allow cord cutters to stream apps like iTunes, Netflix and Youtube on TV. With a foothold in over 15 million households, Roku has rapidly monetized its users through ad-supported content, leading to extreme growth in that high-margin segment. Now it must sell investors on the long-term potential of this pivot from hardware sales to its newer streaming model. Unlike consumer electronics makers GoPro (GPRO) and Fitbit (FIT) - both down considerably from their IPOs - Roku is coming to market after successfully generating revenue from delivering content, all while outmaneuvering behemoths like Apple, Google and Amazon to become the top streaming platform in the US. But don't expect Amazon to roll over: Roku still needs to get boxes in more homes, and intense competition has forced discounts, leading to a decline in YoY hardware revenue. Roku relies on third parties for content, including streaming competitors, and smart TVs further alter the competitive landscape. Top VC backer Menlo Ventures is selling on the deal.
Big chem goes public in quarter's largest IPO
PQ Group Holdings (PQG) aims to raise $638 million at a $2.9 billion market cap. Backed by CCMP, the company sells inorganic chemicals used in a wide variety of end markets, including tires, fuels and emission controls, consumer products, plastics and more. It boasts a #1 or #2 position in its key product offerings, and adjusted EBITDA margins are relatively high at 30%. However, pro forma revenue declined slightly in 2016, and post-IPO debt is high at $2.1 billion.
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Smart baby: Chinese education a red-hot space
RYB Education (RYB) has become a leading provider of for-profit early childhood education in China. The company has strong growth and in a massive market, further supported by China's expanded two-child policy. While margins are expanding, they still are broadly below peers. However, the technical backdrop could be too hot to ignore: close peer Bright Scholar Education (BEDU) is up 145% from its May 2017 IPO.
Three biotechs ride a wave of momentum
Three sizable biotechs aim to price IPOs, with insiders planning to take down 30-40% of each deal. They should benefit from strong trading in the space: The year's 22 biotech IPOs average a total return of 39%, including four that have risen over 40% in the past month alone (URGN, AKCA, GTHX, ANAB). Cancer therapies have done particularly well.
Deciphera Pharmaceuticals (DCPH) is targeting various solid tumors using its kinase inhibitor platform, which demonstrated encouraging results in early trials. It is a crowded space, and significant losses are expected to continue through development. However, IPO investors may benchmark its potential to close peer Blueprint Medicines (BPMC), up 247% from its 2015 offer price, including a YTD gain of 123%.
Backed by Sofinnova, UK biotech NuCana (NCNA) is targeting a wide range of solid tumor cancers with its ProTide technology, which it believes can improve the efficacy and safety of common chemotherapies. Its lead candidate is in a Phase 2 trial. Two other chemotherapy biotechs have IPO'd in 2017: UroGen Pharma (URGN; 135% from IPO price) and Athenex (ATNX; 53%).
Another UK biotech, Nightstar Therapeutics (NITE) is developing a gene therapy to cure rare diseases that lead to blindness. Backed by Syncona and NEA, Nightstar's drug is entering Phase 3 trials in the 1H18, further than any other candidate for its rare indication. Close peer and 2015 IPO Spark Therapeutics (ONCE) is up 270% from its offer price (+75% YTD). Few gene therapies have ever been approved, however, with eye biotech Adverum (ADVM; -80% from 2014 IPO) offering a cautionary tale.
Gadsden Growth Properties (GADS), a newly-formed micro-cap specialty REIT, could also price a $35 million IPO during the week.
IPO Market Snapshot
The Renaissance IPO Indices are market cap weighted baskets of newly public companies. The Renaissance IPO Index is up 27.5% year-to-date, ahead of the S&P 500, which is up 11.8%. 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 25.8% year-to-date, while the ACWX is up 20.3%. Renaissance Capital’s International IPO ETF (NYSE: IPOS) tracks the index, and top ETF holdings include ABN AMRO Group and Covestro. To find out if this is the best ETF for you, visit our IPO Investing page.
