It's all quiet in the IPO market as hell breaks loose elsewhere.
The VIX volatility index spiked above 40 for the first time since August 2011, but ended the week at 26. With an especially-late Labor Day this year, that number has two weeks to slide below 20 before volatility threatens to derail the IPO market. IPO returns will also need to improve, as nearly half of 2015 IPOs trade below their offer price for the second week in a row. Assuming markets stabilize, this could translate into greater buying power for IPO investors, especially for cash-strapped biotechs and debt-burdened LBOs.
IPO pipeline update: Health care pulls through
Six IPOs filed in the past week, and five were health care. The sector currently represents 44% of IPOs year-to-date. 11 other companies updated registration documents, signaling plans to go public soon.
IPO filings included one regional bank, one medical systems LBO and four biotechs. More than other sectors, health care has greater immunity from turmoil in commodities and emerging markets. Out of IPOs in the past 90 days, seven of the eight that trade more than 50% above the IPO price are health care. Yet regardless of the sector, every IPO will be challenged if this level of volatility continues to rock the markets.
Three large biotech IPOs
Three biotech IPOs this week filed with a proposed deal size of more than $80 million. Larger biotech IPOs have historically outperformed, and each of the three boasts top-tier investors such as NEA, Third Rock, Fidelity and RA Capital or premium pharmaceutical partners like Pfizer, Baxalta and Roche.
Another highly-levered billion-dollar IPO
Acelity Holdings (ACEL.RC), an LBO'd medical systems maker, filed this week for an IPO that we estimate could raise $1 billion. With $4.8 billion in debt (6.6x LTM EBITDA), Acelity joins a growing list of large and highly-levered LBO'd IPOs, as PE firms seek to exit their investments and pay down debt ahead of a potential rate hike in September. Recent filers include Neiman Marcus (NMG; debt of 6.6x LTM EBITDA), First Data (FDC.RC; 8.1x), Albertsons (ABS; 5.4x), Surgery Partners (SGRY; 8.9x), Mauser Group (MAUS.RC; 6.5x) and ADS Waste (ADSW; 6.0x).
| 6 IPOs Filed during the week of August 24 | ||||
| Issuer Business |
Symbol Exchange |
Deal Size($m) |
Backers | Top 3 Bookrunners |
| Acelity San Antonio, TX |
TBA TBA |
$1,000 estimate |
Apax Partners CPPIB |
JP Morgan Goldman Sachs BofA ML |
| LBO'd provider of advanced wound care systems and tissue implants. |
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| CytomX Therapeutics South San Francisco, CA |
CTMX Nasdaq |
$100 | Third Rock, Pfizer Canaan, Fidelity |
BofA ML Jefferies Cowen & Co. |
| Developing cancer immunotherapies that do not target healthy cells. |
||||
| Cortendo Trevose, PA |
SBBP Nasdaq |
$86 | TVM, HealthCap RA Capital, NEA |
BofA ML Stifel |
| Developing therapies for Cushing's syndrome and acromegaly. |
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| Mirna Therapeutics Austin, TX |
MIRN Nasdaq |
$81 | Sofinovva, NEA Pfizer, Baxalta |
Citi Leerink Partners |
| Developing microRNA replacement therapies for cancer. |
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| Allegiance Bancshares Houston, TX |
ABTX Nasdaq |
$60 | Management Directors |
Baird Stephens |
| Commercial bank with 16 locations in Houston and $2 billion in assets. |
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| Advanced Inhalation Therapies Rehovot, Israel |
AITP Nasdaq |
$36 | Israeli investors CEO |
Aegis Capital |
| Inhaled nitric oxide drug-device therapies for respiratory infections. |
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| Source: IPO ETF manager Renaissance Capital | ||||
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IPO Market Snapshot
The Renaissance IPO Indices are market cap weighted baskets of newly public companies. The Renaissance IPO Index has traded down 3.9% year-to-date, below the S&P 500's 3.4% loss due to the decline of Alibaba and Twitter. Renaissance Capital's IPO ETF (NYSE: IPO) tracks the index, and top ETF holdings include Alibaba (BABA), Hilton Worldwide (HLT) and Twitter (TWTR). The Renaissance International IPO Index has traded down 1.0% year-to-date, compared to -4.6% for the ACWX. Renaissance Capital’s International IPO ETF (NYSE: IPOS) tracks the index, and top ETF Holdings include Recruit Holdings and Cheil Industries. To find out if this is the best ETF for you, visit our IPO Investing page.
