Headlined by a $2.3 billion offering from Brazilian payments processor PagSeguro, eight companies raised a combined $3.6 billion this week. PagSeguro's 36% first day pop cemented it as one of the best billion-dollar IPO debuts of the decade. Not to be outdone, biotechs continued to be the hottest sector of the IPO market: the sector's five deals averaged a 39% return. Two LBOs also came public to moderate receptions: Blackstone’s Gates Industrial (GTES) fell slightly in its debut while Apollo-backed slot machine company PlayAGS (AGS) posted a double-digit gain.
| 9 IPOs During the Week of January 22nd, 2018 | |||||
|---|---|---|---|---|---|
| Issuer Business |
Deal Size |
Market Cap at IPO |
Price vs. Midpoint |
First Day Return |
Return at 01/26 |
| ARMO BioSciences (ARMO) | $128M | $498M | 13% | +75% | +75% |
| Late-stage immunotherapy 2.0 biotech targeting advanced cancers. | |||||
| Menlo Therapeutics (MNLO) | $119M | $403M | 13% | +69% | +68% |
| Developing treatments for moderate to severe skin itch and chronic cough. | |||||
| Solid Biosciences (SLDB) | $125M | $529M | -6% | +41% | +41% |
| Developing a gene therapy to treat Duchenne muscular dystrophy (DMD). | |||||
| PagSeguro (PAGS) | $2,266M | $6,611M | 13% | +36% | +36% |
| Provides online and in-store payment services for small businesses in Brazil. | |||||
| PlayAGS (AGS) | $164M | $551M | -6% | +16% | +16% |
| Apollo-backed supplier of electronic slot machines in Native American casinos. | |||||
| resTORbio (TORC) | $85M | $410M | 0% | +13% | +13% |
| Developing a therapy to boost the immune systems of the very elderly. | |||||
| Gordon Pointe Acquisition (GPAQU) | $125M | $156M | 0% | +0% | +0% |
| Blank check company formed to acquire a FinTech business. | |||||
| Eyenovia (EYEN) | $27M | $113M | -9% | -1% | -1% |
| Developing micro-formulations of common eye therapies. | |||||
| Gates Industrial (GTES) | $732M | $5,628M | -3% | -3% | -1% |
| Global manufacturer of power transmission belts and fluid power products. | |||||
PagSeguro (PAGS), a Brazilian payments processor, raised $2.3 billion in an upsized offering and finished the week up 36%. Its strong first-day pop made it the fifth-best billion-dollar IPO debut in the past ten years. PagSeguro benefits from strong secular growth trends, profitability and a clean balance sheet. However, potential Brazilian regulatory changes could pressure a portion of the company’s early payment of receivables business.
Gates Industrial (GTES) raised $732 million after pricing near the low end of the range on Wednesday and broke issue, finishing the day down 3%. Gates is bet on the continuing economic recovery, selling power transmission and fluid power products around the globe. Although Gates has above-average margins (22% EBITDA margin vs. 19% peer average) and strong free cash flow, its 4.2x net debt/LTM EBITDA leverage is high. Gates follows ADT last week as a poor performing LBO in initial trading.
PlayAGS (AGS) raised $164 million on Thursday, pricing at the low end of the range. Initial trading was more positive, it finished Friday up 16% to close at $18.50, which is above the range. This slot machine provider is coming off a successful product launch which has driven strong organic revenue growth and points towards the company capturing market share.
Healthy returns for biotechs
After increasing the share count and range, dermatology biotech Menlo Therapeutics (MNLO) priced at the $17 high end to raise $119 million (40% more than originally anticipated). The stock was well received, popping 69% on its first day. While Menlo will require additional capital to reach commercialization, it has demonstrated solid clinical data and benefits from a potentially large target market of individuals who suffer from either severe skin itch or chronic cough.
Cancer immunotherapy company ARMO BioSciences (ARMO) shot up 75% in its debut after pricing its $128 million deal above the range. ARMO’s lead candidate is a second-generation immunotherapy that has demonstrated synergies with standard of care therapies across a range of cancers. Still far from commercialization, recent M&A activity in the space likely buoyed this deal: close peer Syndax announced a collaboration agreement with Genentech on January 10 and Celgene announced its acquisition of Juno Therapeutics for $9 billion on January 22.
In a rare move for an IPO, gene therapy company Solid Biosciences (SLDB) increased its price range to $17-$19, then priced at $16, the low end of its original $16-$18 range. The stock then traded up 41%. The pricing shift came after the disclosure that the FDA had placed a clinical hold on dosing patients in Solid's higher-dose group. While the lack of disclosure may have turned off some investors, the company claims that timing for clinical development will not be affected by the partial hold. Early trading likely benefited from strong momentum amid M&A speculation.
resTORbio (TORC), which is studying how target of rapamycin complex 1 (TORC1) inhibitors can boost immune function in the elderly, raised $85 million and traded up 13%. While Phase 2a data supports the reduced incidence of infections, the company is still at least three years from commercialization and management has not articulated a specific go-to-market strategy.
Eyenovia (EYEN), which is developing micro-formulations of common eye therapies, raised $27 million at the $10 low end. It broke issue on its first day and finished the week just below its offer price.
No filings update
While the week was active for launches and pricings, there were no initial filings this week as we approach the February lull when companies are required to disclose year end financials.
IPO Market Snapshot
The Renaissance IPO Indices are market cap weighted baskets of newly public companies. The Renaissance IPO Index is up 2.5% year-to-date and the S&P 500 is up 7.5%. Renaissance Capital's IPO ETF (NYSE: IPO) tracks the index, and top ETF holdings include Snap (SNAP) and US Foods (USFD). The Renaissance International IPO Index is up 7.3% year-to-date, while the ACWX is up 7.6%. Renaissance Capital’s International IPO ETF (NYSE: IPOS) tracks the index, and top ETF holdings include Orsted (DONG Energy) and ASR Nederland.
