Eight initial public offerings are expected to raise $1.3 billion during the week of October 6, 2014, representing a well-rounded group of tech, finance, health care, consumer, and energy IPOs. After uninspiring performance from last week's eleven offerings, new IPO issuance could be threatened if these eight face a similar reception. Recent tech returns have been positive, and a successful IPO from SaaS provider HubSpot could encourage the sector to pick up. MOL Global, a high-growth e-payment provider in Southeast Asia, has a unique story, while consumer LBO Dave & Buster's offers a recognizable brand.
A high-growth marketing SaaS
HubSpot (HUBS), which provides a cloud-based marketing automation platform for small and mid-sized businesses, is targeting a $115 million IPO. Moreso than last week's Yodlee (YDLE; up 12%), the strength of HubSpot's IPO could test investor demand for high-growth tech companies with major near-term losses. The company continues to invest heavily in sales and marketing (expenses were 63% MRQ sales) in hopes of achieving scale. HubSpot has strong backers, including General Catalyst Partners, Matrix Partners and Sequoia Capital, and may benefit from strong performance from Marketo (MKTO), which has gained over 160% since its May 2013 IPO.
Three finance IPOs: asset manager, e-payments, small bank
Three financial services companies are set to price IPOs, including the week's largest and smallest deals. Old Mutual, the London-based insurer, is spinning off its US asset management arm. Amid more stringent regulation of financial institutions, large companies continue to raise capital and spin off holdings through 2014 IPOs (SC, SYF, CFG, upcoming GWB). OM Asset Management (OMAM) operates seven boutique asset management firms in the US. Its parent is offering the entire float and, after a one-time $175 million dividend to Old Mutual, the IPO candidate plans to issue 25% of its economic net income revenue (ENI) as dividends ($131 million LTM economic net income). Financial services IPOs have had challenges, including recent asset manager Medley (MDLY); down 10%.
MOL Global (MOLG) is set to be the first US IPO of a Malaysian company in over ten years. Owned by billionaire Vincent Tan and expected to raise $263 million, MOL Global is the largest e-payment services provider for online sales in Southeast Asia. It sells MOLPoints, which are bought with cash at physical locations and can be mainly used to purchase digital content in online games. The company now offers a suite of e-payment services, including a digital wallet product. The fight for consumers' virtual wallets has intensified in the US, with Apple's (AAPL) new Apple Pay for the iPhone 6 and eBay's (EBAY) recently-announced plans to spin off PayPal. Assuming MOL Global can manage its margins and continue to execute on its aggressive growth, the company's dominant position in a region with low credit card penetration may spark interest among investors.
Veritex Holdings (VBTX) operates 8 bank branches in the Dallas MSA with about $700 million in assets. While banking IPOs have generally underperformed in 2014 (5% average return), the company may benefit from the success of Texas-based Green Bancorp (GNBC), the year's best-performing bank IPO (up 13%).
Third week with a midstream energy MLP
For the third week in a row, an oil and gas MLP with midstream assets is slated to go public. USD Partners LP (USDP), expected to raise $177 million at a $527 million enterprise value, is being spun out of US Development Group, a rail and logistics company owned by Goldman Sachs and Energy Capital Partners. Independently-owned crude-by-rail serves as an alternative to pipelines. The past two midstream MLPs have seen mixed trading, with JP Energy Partners LP (JPEP) down 3% and CONE Midstream Partners LP (CNNX) up 27%. Based on a new filing activity, we expect strong issuance of energy MLPs heading into the fourth quarter. Another midstream MLP, Dominion Midstream Partners LP (DM), filed terms Monday morning for a $650 million IPO next week.
One consumer LBO; a play on playing
Dave & Buster's (PLAY) operates 70 stores that provide casual dining complemented by large arcades. Bought from Wellspring Capital by Oak Hill in 2010 for $570 million, D&B originally set terms to go public in 2012 but withdrew the offering. Since then, the company claims it has upgraded its food and amusements, proven a smaller store format and beat earnings estimates. Concerns include post-IPO leverage and the performance of last week's PE-backed deals, but investors may be attracted to its turnaround story and positive trading among consumer IPOs.
Two health care IPOs (zero biotechs)
Diplomat Pharmacy (DPLO) is the fourth largest specialty pharmacy in the US, behind Walgreens (WAG), CVS Caremark (CVS), and Express Scripts (ESRX). Specialty pharmacies distribute drugs that require coordinated regimens for complex diseases. Its primary suppliers are AmerisourceBergen (ABC) and Celgene (CELG). The year has seen 59 biotech IPOs, but Diplomat represents a latter stage of the supply chain (after CRO PRAH and CMO/delivery tech provider CTLT). Controlled by its founder with backing from Janus Capital and T. Rowe Price, Diplomat boasts 43% sales growth to $1 billion during the six months ended June 30.
NeuroSigma (NSIG), a development-stage medical device company, plans to raise $50 million. It has completed Phase 2 trials for a neurostimulator intended as an adjunctive therapy for adults with epilepsy, and is in Phase 2 trials for its use to treat depression. Close peer Cyberonics (CYBX) has fallen 22% year-to-date after four years of impressive gains. Two biotechs targeting epilepsy have IPO'd this year, including Sage Therapeutics (SAGE; +112%) and Marinus Pharmaceuticals (MRNS; -22%).
| IPOs set to price during the week of Oct 6, 2014 | |||
| Company (Ticker) | Business | Lead underwriters |
Deal Size ($mm) |
| OM Asset Management (OMAM) | Asset management arm of Old Mutual |
BofA ML M. Stanley |
$352 |
| MOL Global | Online payments in Southeast Asia |
Citi Deutsche |
$263 |
| USD Partners LP (USDP) |
MLP: Oil and gas rail terminals | Citi Barclays |
$177 |
| HubSpot (HUBS) | Marketing automation SaaS platform | M. Stanley JP Morgan |
$115 |
| NeuroSigma (NSIG) | Developing devices for epilepsy | Jefferies |
$50 |
| Veritex Holdings (VBTX) | Dallas bank with 8 branches | Sandler Stephens |
$35 |
| Diplomat Pharmacy (DPLO) |
Specialty pharmacy for complex treatments | Credit Suisse M. Stanley |
$200 |
| Dave & Buster's (PLAY) | Oak Hill LBO: 70 restaurant/arcades | Jefferies Piper Jaffray |
$100 |
The following IPOs are expected to price this week. Predict the outcome of these deals in our IPO poll.
Dave & Buster's Entertainment (PLAY), an Oak Hill-backed operator of 70 casual dining restaurants with large arcades, plans to raise $100 million by offering 5.9 million shares at a price range of $16 to $18. At the midpoint of the proposed range, it would command a market value of $713 million ($1.1 billion enterprise value). Dave & Buster's, which was founded in 1982, booked $690 million in sales over the last 12 months. The Dallas, TX-based company plans to list on the NASDAQ under the symbol PLAY. Jefferies, Piper Jaffray, William Blair and Raymond James are the joint bookrunners on the deal.
Diplomat Pharmacy (DPLO), which operates the fourth largest specialty pharmacy in the US, plans to raise $200 million by offering 13.3 million shares at a price range of $14 to $16. At the midpoint of the proposed range, Diplomat Pharmacy would command a market value of $814 million. Diplomat Pharmacy, which was founded in 1975, booked $1.8 billion in sales over the last 12 months (1.4% EBITDA margin). The Flint, MI-based company plans to list on the NYSE under the symbol DPLO. Credit Suisse, Morgan Stanley, J.P. Morgan and Wells Fargo Securities are the joint bookrunners on the deal.
HubSpot (HUBS), which provides a cloud-based marketing automation platform to SMBs, plans to raise $115 million by offering 5.0 million shares at a price range of $22 to $24. At the midpoint of the proposed range, HubSpot would command a market value of $796 million. HubSpot, which was founded in 2005, booked $94 million in sales over the last 12 months (-38% EBIT margin; 46% MRQ sales growth). The Cambridge, MA-based company plans to list on the NYSE under the symbol HUBS. Morgan Stanley, J.P. Morgan and UBS Investment Bank are the joint bookrunners on the deal.
MOL Global (MOLG), a Malaysian provider of online payment services mainly used for game credits, plans to raise $263 million by offering 19.5 million shares at a price range of $12.50 to $14.50. At the midpoint of the proposed range, it would command a market value of $928 million. MOL Global, which was founded in 2000, booked $62 million in sales over the last 12 months (25% EBITDA margin; 34% MRQ sales growth). The Kuala Lumpur, Malaysia-based company plans to list on the NASDAQ under the symbol MOLG. Citi, Deutsche Bank and UBS Investment Bank are the joint bookrunners on the deal.
NeuroSigma (NSIG), which develops electrical devices used to treat drug-resistant epilepsy and depression, plans to raise $50 million by offering 3.6 million shares at a price range of $13 to $15. At the midpoint of the proposed range, it would command a market value of $204 million. The Los Angeles, CA-based company, which was founded in 2008, plans to list on the NASDAQ under the symbol NSIG. Jefferies is the lead bookrunner on the deal.
OM Asset Management (OMAM), the asset management arm of London-based Old Mutual with $215 billion in AUM, plans to raise $352 million by offering 22.0 million shares at a price range of $15 to $17. At the midpoint of the proposed range, it would command a market value of $1.9 billion. OM Asset Management, which was founded in 1980, booked $568 million in economic net income (ENI) revenue over the last 12 months ($131 million ENI). The London, United Kingdom-based company plans to list on the NYSE under the symbol OMAM. BofA Merrill Lynch, Morgan Stanley, Citi and Credit Suisse are the joint bookrunners on the deal.
USD Partners LP (USDP), an MLP spun out of US Development Group to own oil and gas rail terminals, plans to raise $177 million by offering 8.9 million shares at a price range of $19 to $21. At the midpoint of the proposed range, it would command a market value of $427 million. USD Partners LP, which was formed in 2014, booked $24 million in sales over the last 12 months. The Houston, TX-based company plans to list on the NYSE under the symbol USDP. Citi, Barclays, Credit Suisse and BofA Merrill Lynch are the joint bookrunners on the deal.
Veritex Holdings (VBTX), a Texas bank with over $700 million of assets and eight branches in the Dallas MSA, plans to raise $35 million by offering 2.7 million shares at a price range of $12 to $14. At the midpoint of the proposed range, it would command a market value of $120 million. Veritex, which was founded in 2009, booked $25 million in net interest and noninterest income over the last 12 months. The Dallas, TX-based company plans to list on the NASDAQ under the symbol VBTX. Sandler O'Neill and Stephens are the joint bookrunners on the deal.
Renaissance Capital will have Pre-IPO Research available on each of these upcoming IPOs prior to its pricing.
IPO market indicators
The IPO market has seen 27 offerings in the past 30 days raise $31 billion (+12% avg total return; -2% after the first day). Last week, there were 11 IPO pricings. American Addiction Centers (AAC), which operates six substance abuse treatment centers in the US, was the week's winner, ending up 24% from its IPO price. An e-commerce IPO and a SaaS platform were the only other two IPOs to end the week with meaningful gains.
Aside from issuing pre-IPO institutional reserach, Renaissance Capital manages the US IPO ETF, a market cap-weighted basket of recently-public companies.
