This week featured the largest IPO of 2018, AXA Equitable. Yet, another spin-off stole the show, as fast-growing Chinese tech company HUYA popped 34%.
Thanks to AXA and several billion-dollar IPOs in the 1Q18, the US IPO market has raised more proceeds than any YTD period since 2008. Yet broader equity markets have been turbulent since February, and until recently, only half of 2018 IPOs were trading above issue. That backdrop is contributed to the monthly IPO deal count for April and possibly May coming in below 2017.
The recent pickup in performance is a good sign. The VIX Volatility Index hit its lowest point since January. The window is wide open for tech, and recent energy and biotech IPOs are trending higher as well. The 68 IPOs from 2018 average an 18% gain, including 5% in aftermarket trading, with 60% trading above issue.
| 4 IPOs During the Week of May 7th, 2018 | |||||
|---|---|---|---|---|---|
| Issuer Business |
Deal Size |
Market Cap at IPO |
Price vs. Midpoint |
First Day Return |
Return at 05/11 |
| HUYA (HUYA) | $180M | $2,628M | 9% | +34% | +34% |
| Live streaming platform for video games and e-sports spun out of China's YY. | |||||
| Origin Bancorp (OBNK) | $124M | $787M | 0% | +10% | +9% |
| Community bank focused on commercial lending in Louisiana, Texas and Mississippi. | |||||
| AXA Equitable (EQH) | $2,745M | $11,220M | -22% | +2% | +7% |
| US operations of life insurance and asset management firm AXA. | |||||
| Evelo Biosciences (EVLO) | $85M | $563M | 0% | +2% | +0% |
| Early-stage biotech developing microbial gut therapies for inflammatory diseases. | |||||
Sign up for a free trial of our premium platform, IPO Pro. Follow us on Twitter (@IPOtweet) and register for our updates on the IPO market.
AXA Equitable (EQH) raised $2.7 billion in the year's largest IPO, even after it slashed its price to $20 from a proposed $24-27. The stock traded up 2% on its first day, in line with other billion-dollar financial IPOs, and finished Friday a 7% gain. Investors likely pushed on price given the recent weakness in the industry, and the knowledge that parent AXA SA (Euronext: CS) was a motivated seller. Despite some exposure to volatile assets, related-party transactions with AXA and sector headwinds, the IPO was priced at a very clear discount to public peers.
The week's star performer was HUYA (HUYA), which priced at the high end and popped 39%, reversing a streak of disappointing Chinese tech IPOs. Spun out of YY, HUYA offers a play on the rise of e-sports streaming. It boasts rapid growth (+175% to $350 million in 2017) and recently became cash flow positive.
The technology sector holds a commanding lead in the 2018 IPO market, and its one former weakness - Chinese tech stocks - have rebounded in the past weeks (IQ, BILI and STG each gained 10-25%).
Origin Bancorp (OBNK) priced at the midpoint, raising $124 million (31% insider selling) at a valuation of $787 million. It traded up 10% on its first day, toward the high end of bank IPO pops during the past few years. Its expansion into Texas allows it to take advantage of regional economic tailwinds.
While 2017 biotech IPOs are still flying high, this year's new issues have received lukewarm receptions. None of the the most recent 7 biotechs have traded up more than 5% initially. The 2018 average return is 17%, mostly driven by ARMO Biosciences (ARMO; +193%), acquired by Eli Lilly this past week, and micro-cap Genprex (GNPX; +167%).
Evelo Biosciences (EVLO) raised $85 million, with $40 million bought by insiders. The stock finished the week at its offer price. Backed by Flagship and Fidelity, Evelo recently dosed its first patient as it studies the effects of the human gut on boosting the immune system.
Abpro (ABP) postponed its $60 million offering, 47% of which had been covered by insiders. While some immuno-oncology biotechs have done extremely well, investors prefer revolutionary treatments when taking on the risks of a preclinical developer. IPO investors also feel more comfortable going in alongside the likes of OrbiMed and Fidelity than a Chinese venture capitalist and "Healthcare Industry Cayman Co. Ltd."
US IPO Pipeline Update: Tax compliance unicorn Avalara files
| 3 Filings During the Week of May 7th, 2018 | |||
|---|---|---|---|
| Issuer Business |
Deal Size |
Sector | Lead Underwriter |
| Avalara (AVLR) | $150M | Technology | Goldman |
| Cloud-based sales tax and compliance solutions provider. | |||
| Autolus Therapeutics (AUTL) | $100M | Health Care | Goldman |
| Developing cancer therapies based on CAR-T cell technology. | |||
| U.S. Xpress Enterprises (USX) | $100M | Industrials | BofA ML |
| Mid-sized trucking company in the eastern US. | |||
IPO Market Snapshot
The Renaissance IPO Indices are market cap weighted baskets of newly public companies. The Renaissance IPO Index has returned 2.5% year-to-date, while the S&P 500 is up 2.0%. 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 -0.6% year-to-date, while the ACWX is up 1.6%. Renaissance Capital’s International IPO ETF (NYSE: IPOS) tracks the index, and top ETF holdings include Orsted (DONG Energy) and Samsung BioLogics.
