Growth is good. IPO investors are still sweet on the tech sector, with cybersecurity provider Carbon Black (CBLK) up 26% on its debut. The other high-growth offering, Inspire Medical Systems (INSP), did even better, up 53%. The week also saw IPOs from two banks, three biotechs, a road paver and an oil trust, all of which had less impressive returns, ranging from -20% to 5%. Eight deals priced, tied for the most active week of the year, though IPO proceeds were relatively light at $733 million.
Investors are beginning to profit more broadly in the IPO market: The number of 2018 IPOs above issue is back above half at 56%, with a 12% average return. For IPOs over the past 90 days, aftermarket returns doubled from the prior week to more than 5%. Those recent gains support an open IPO market.
| 8 IPOs During the Week of April 30th, 2018 | |||||
|---|---|---|---|---|---|
| Issuer Business |
Deal Size |
Market Cap at IPO |
Price vs. Midpoint |
First Day Return |
Return at 05/04 |
| Inspire Medical Systems (INSP) | $108M | $354M | 7% | +56% | +53% |
| Sells an implanted device for treating obstructive sleep apnea. | |||||
| Carbon Black (CBLK) | $152M | $1,519M | 19% | +26% | +26% |
| Provides endpoint security software to large enterprises. | |||||
| BayCom (BCML) | $63M | $228M | 0% | +5% | +5% |
| California bank with 17 full-service branches and over $1.2 billion in assets. | |||||
| Spirit of Texas Bank (STXB) | $42M | $213M | 0% | +4% | +4% |
| Texas community bank with 15 branches and over $1 billion in assets. | |||||
| Construction Partners (ROAD) | $135M | $622M | -25% | +1% | +1% |
| Vertically-integrated provider of road construction and paving in the Southeast. | |||||
| Unity Biotechnology (UBX) | $85M | $787M | 0% | -2% | -1% |
| Preclinical biotech developing therapies to reduce the effects of aging. | |||||
| PermRock Royalty Trust (PRT) | $106M | $207M | -15% | -9% | -9% |
| Trust formed by NGP's Boaz Energy to own Permian Basin royalty interests. | |||||
| ASLAN Pharmaceuticals (ASLN) | $42M | $235M | 0% | -20% | -20% |
| Singapore biotech developing cancer therapies using the HER pathway. | |||||
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Carbon Black (CBLK) priced above its range at $19 to raised $152 million at a valuation of $1.5 billion. Most recent high-growth tech IPOs have popped, and the endpoint security software provider checked all the boxes: a subscription model, a large market, $162 in annual sales growing at 39%, and a valuation pitched below public peers. Going forward, its key risk lies in the combination of extremely high losses (-28% EBITDA margin in the 4Q17) and lumpy revenue growth.
Inspire Medical Systems (INSP) raised $108 million - 44% more than expected - by offering extra shares at the $16 high end, for an IPO market cap of $354 million. It finished the week up 53%. Inspire's implanted sleep apnea devices are less obtrusive than the standard of care. That's reflected in its recent financials; sales grew 74% to $29 million, with a 79% gross margin. Led by former Medtronic execs and backed by US Venture Partners and OrbiMed, Inspire's valuation now hinges on its continued growth and improving its heavy losses (-54% EBITDA margin in 2017).
Construction Partners (ROAD), the week's second-largest IPO, raised $135 million after pricing at $12, well below its range of $15-$17. The stock rose just 0.8% on Friday. Construction Partners benefits from its vertical integration, though at $12, investors valued it more like a standard construction firm. It also has related party transactions and customer concentration. That said, it does offer a way to play a possible pickup in government infrastructure spending.
PermRock Royalty Trust (PRT) raised $106 million at a market cap of $207 million after pricing below the range. Hard to value, the oil and gas trust came public expecting a payout of $2.40 in the next 12 months (14% yield). The perpetual trust will continue distributing dividends until the underlying Permian properties are depleted.
Unity Biotechnology (UBX) raised $85 million after pricing at the midpoint. Excluding US cross-listings, the preclinical biotech was the year's largest biotech to go public, with a market cap of $787 million. Targeting aging-related diseases, Unity may be one of the year's most ambitious biotechs, but its early stage and novel approach amplify the risk of trial failure. Backed by ARCH Venture, Unity did not disclose insider buying, unusual for a 2018 biotech.
The week's other biotech, cancer-focused ASLAN Pharmaceuticals (ASLN), raised $42 million at a valuation of $235 million. Listed in Taiwan, the company plummeted 20% on its US debut, the worst first-day of 2018. Of the year's 16 biotech IPOs, only 6 now trade above issue.
Two regional banks went public this week, both trading up about 4%. Spirit of Texas Bancorp (STXB) raised $42 million at a $213 million valuation by pricing at the midpoint. California-based BayCom (BCML) uplisted to the Nasdaq; it offered additional shares at the midpoint to raise $63 million at a market cap of $228 million. 22 banks have gone public since the start of 2016, and each trades above its offer price.
US IPO Pipeline Update: Low filings this week anticipate a quieter late May
| 2 Filings During the Week of April 30th, 2018 | |||
|---|---|---|---|
| Issuer Business |
Deal Size |
Sector | Lead Underwriter |
| Iterum Therapeutics (ITRM) | $92M | Health Care | Leerink Partners |
| Developing oral and IV antibiotics for drug-resistant bacterial infections. | |||
| Thunder Bridge (TBRGU) | $200M | SPAC | Cantor Fitz. |
| Blank check company formed to acquire a FinTech business. | |||
IPO Market Snapshot
The Renaissance IPO Indices are market cap weighted baskets of newly public companies. The Renaissance IPO Index has returned -0.36% year-to-date, while the S&P 500 is down -0.38%. Renaissance Capital's IPO ETF (NYSE: IPO) tracks the index, and top ETF holdings include Spotify (SPOT) and Snap (SNAP). The Renaissance International IPO Index is down -1.1% year-to-date, while the ACWX is flat. Renaissance Capital’s International IPO ETF (NYSE: IPOS) tracks the index, and top ETF holdings include Orsted (DONG Energy) and Samsung BioLogics.
