Ten companies raised a combined $1.6 billion in the most active week of the 2017 IPO market. Texas community bank CBTX took the top spot with a 10% pop, which is still below the long term historical average of 13%. The week featured three regional banks, three biotechs, three fast-growing Chinese companies and a communications platform pivoting to growth. First day pops for IPOs this week averaged just 3.6%. However, no company finished the week below issue price.
The recent trend of high first-day pops and poor aftermarket returns that started the quarter has reversed over the past two weeks. The low first day returns likely benefit aftermarket return, which averaged +0.9% this week. Over the past 90 days, average aftermarket return is now flat at 0%, compared to -5% as of November 3.
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| 10 IPOs During the Week of November 6, 2017 | |||||
| Issuer Business |
Deal Size ($mm) |
Market Cap at IPO ($mm) |
Price vs. midpoint |
First day return |
Return at 11/10 |
| CBTX (CBTX) | $62 | $644 | +4% | +10% | +12% |
| Commercial bank with locations throughout Southeast Texas. |
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| Meridian Bank (MRBK) | $40 | $103 | -6% | +7% | +7% |
| Commercial bank with 22 locations in the Philadelphia MSA. |
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| Sogou (SOGO) | $585 | $5,180 | +8% | +4% | +7% |
| China's second largest mobile search engine backed by Tencent and Sohu. |
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| Erytech Pharma (ERYP) | $109 | $411 |
-1% | +6% | +6% |
| French biotech developing enzyme-based therapies for rare cancers. | |||||
| Bandwidth (BAND) | $80 | $402 | -5% | +6% | +6% |
| VoIP network offering voice and text software APIs to enterprises. | |||||
| Metropolitan Bank Holding (MCB) | $109 | $287 |
+8% | +6% | +6% |
| Commercial bank with five branches in the New York MSA. | |||||
| PPDAI Group (PPDF) | $221 | $4,241 |
-26% | +1% | +1% |
| Leading Chinese peer-to-peer online lending platform. | |||||
| Apellis Pharmaceuticals (APLS) | $150 | $750 |
0% | 0% | 0% |
| Developing a novel protein inhibitor for eye and blood diseases. | |||||
| Four Seasons Education (FEDU) |
$101 | $524 | 0% | -5% | 0% |
| Chinese provider of after school math tutoring services in Shanghai. |
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| InflaRx (IFRX) |
$100 | $362 | 0% | 0% | 0% |
| Developing an antibody for rare autoimmune and inflammatory diseases. |
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3 regional banks trade up
TX-based CBTX (CBTX, $3 billion in assets) raised $62 million and priced at the high end before popping 10% for the best first day of the week. The community bank benefits from Houston's status as one of the US’s fastest growing markets.
New York’s Metropolitan Bank (MCB, $1.6 billion in assets), which provides loans to middle market companies and high-net-worth real estate investors, raised $109 million after pricing above the range; it traded up 6% on its first day.
PA-based Meridian Bank (MRBK) raised $40 million by offering 2.35 million shares at $17, the low end of the range. It traded up 7% on its first day.
Search, loans and education out of China
Mobile search engine Sogou (SOGO), China’s second-largest player, raised $585 million in the largest offering of the week. The fast-growing company has been taking share from dominant player Baidu and boasts a track record of profitability and free cash flow generation. It traded up 6.5% by Friday, slightly below peers. While backer Tencent drives heavy traffic to the search engine, the nature of the relationship also adds strategic concentration risk.
Consumer lending platform PPDAI Group (PPDF) raised $221 million by offering 17 million ADSs at $13, well below the $16 to $19 range. It traded flat on its first day. The broader online lending peer group traded down over the past week, signaling a turn in investor sentiment due to Chinese regulatory uncertainty.
Four Seasons Education (FEDU) priced at the midpoint and raised $101 million. The Chinese math tutoring company traded down 5% on its first day, likely due to recent unfavorable trends in enrollment (-2% in 1HFY18) as a result of cannibalization from its higher-priced services. Investors are also jittery over a recent sell-off in the peer group, with last month's RISE Education (REDU) down 21% from its IPO price.
Biotech trading cools off
The hottest IPO sector of the year (averages a 12% first day pop and 33% return YTD) cooled off with immunotherapy company Apellis Pharmaceuticals (APLS) and rare disease company InflaRx (IFRX) both breaking issue and finishing the week flat at their offer prices. Already listed in Europe, Erytech Pharma (ERYP) finished up 7% in its US IPO. Although Apellis and InflaRx face significant competition, the slowdown in biotech trading suggests that momentum traders may be wading out of the sector.
VoIP network provider Bandwidth (BAND) raised $80 million, offering 4 million shares at the $20 low end of the range. It traded up 6% on its first day. The communications platform has historically operated a profitable business with modest growth and has seen customer adds accelerate (+18% in the 3Q17). However, it has recently ramped up its sales spending, which it expects will lead to near-term losses.
Two deals postpone
Workspace Property Trust (WSPT), which is targeting $527 million at a billion-dollar market cap (19.8x 1H17 annualized PF FFO), and outsourced IT provider AMERI Holdings (AMRH), which is listed on the OTCQB, both pushed their deals to next week.
IPO Pipeline Update
Three companies submitted initial filings this week. Oral drug developer Entera Bio (ENTX) filed to raise $50 million. Luther Bancorp (LBC), a California commercial bank with over $5 billion in assets, aims to raise $150 million. Quanterix (QTRX), which develops and sells protein detection tests, filed to raise $58 million. Signs of life appeared in the energy sector as ProPetro (PUMP) completed a secondary offering and Liberty Oilfield (BDFC) filed its 3Q17 financials.
IPO Market Snapshot
The Renaissance IPO Indices are market cap weighted baskets of newly public companies. The Renaissance IPO Index is up 32.1% year-to-date, ahead of the S&P 500, which is up 15.3%. Renaissance Capital's IPO ETF (NYSE: IPO) tracks the index, and top ETF holdings include First Data (FDC) and Square (SQ). The Renaissance International IPO Index is up 26.4% year-to-date, while the ACWX is up 22.1%. Renaissance Capital’s International IPO ETF (NYSE: IPOS) tracks the index, and top ETF holdings include Japan Post and ABN AMRO Group. To find out if this is the best ETF for you, visit our IPO Investing page.
