9/16/16 Analyst IPO Market Commentary
Nine deals are on the IPO calendar for the week ahead, aiming to raise a combined $1.2 billion. Set to be the most active week of 2016, the wave of deals counts three founder-led high-growth software companies and a telecom equipment provider. Other deals include two consumer brands, two biotechs and one bank.
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Valvoline (VVV), a spin-off from parent Ashland (NYSE:ASH), sells automotive and industrial lubricants and operates over 1,000 quick lube centers. The company plans to raise $645 million at a market cap of $4.3 billion. Though revenue has been stagnant in recent years, its sees international expansion as a source of growth, while building on its #2 position in the quick lube market by opening and acquiring additional stores. A defensive business with strong cash flow ($2 billion in 2015 sales; 21% adj. EBITDA margin), the company plans to pay a dividend post-IPO.
e.l.f Beauty (ELF), which sells low-cost branded cosmetics, plans to raise $125 million at a market cap of $737 million. Backed by TPG, its products are available through 19,000 national retail locations including Walmart, Target and CVS. The company saw revenue grow 29% to $97 million (21% adj. EBITDA margin) in the 1H16.
The Trade Desk (TTD) aims to raise $70 million at a market cap of $641 million. The company provides a programmatic, self-serve platform for ad buyers. In 2015, gross spend on its platform totaled over $550 million, resulting in revenue of $114 million for The Trade Desk. Despite operating in a crowded market, the company boasts 2015 revenue growth of 155% ($114 million in 2015 revenue),revenue retention of 135% and net income of almost $16 million. The company hopes its strong growth and positive net income will buck the trend of underperforming ad-tech companies.
Apptio (APTI) plans to raise $84 million at a market cap of $567. Its cloud-based platform for managing IT investments counts over 40% of Fortune 100 companies as customers. Apptio saw a significant improvement in margins in the 1H16 (gross margin +485 bps to 66%) thanks to a mix shift towards subscription revenue (+31% y/y). The company is being offered at a discount to its peers.
Gridsum (GSUM) offers a platform for data analytics and automated keyword bidding in China. Backed by Steamboat Ventures, the company is set to raise $75 million at a market cap of $356 million. Having grown its customer base 45% in 2015, the company saw net revenue increase 75% to $22 million in the 1H16 while gross margin stayed flat at 86%.
AC Immune (ACIU) – Backed by two European billionaires, this Swiss biotech plans to raise $55 million at a market cap of $673 million. Already 55% covered by insiders, its effective float would represent just 3.7% of the market cap. While its lead candidate for Alzheimer’s disease previously fell short during Phase 2 trials, the company believes that it still holds promise for milder stages of the disease, and began a Phase 3 trial in the 1Q16.
Novan (NOVN), which is looking to raise $45 million at a market cap of $181 million, is in Phase 3 trials for acne, with results expected by the first quarter of 2017. Backed by Malin Corp, Novan’s existing shareholders intend to buy over 50% of the deal.
CapStar Financial (CSTR) has $1.3 billion in assets and seven locations and grew revenue by 11% in the 1H16. It is set to raise $40 million at a market cap of $178 million and is the second Tennessee bank to go public in two weeks after FB Financial (FBK; +9%).
Full Spectrum (FMAX), a developer of private cellular network radios, aims to raise $15 million with a market cap of $55 million. The company saw its revenue decline 65% in 2015, but now hopes that a new product launch will grow revenue meaningfully.
IPO Market Snapshot
The Renaissance IPO Indices are market cap weighted baskets of newly public companies. The Renaissance IPO Index is flat year-to-date, while the S&P 500 is up 5%. Renaissance Capital's IPO ETF (NYSE: IPO) tracks the index, and top ETF holdings include Alibaba (BABA), Synchrony Financial (SYF) and Citizens Financial Group (CFG). The Renaissance International IPO Index is down 2% year-to-date, compared to +4% for ACWX. Renaissance Capital’s International IPO ETF (NYSE: IPOS) tracks the index, and top ETF holdings include NN Group and Aena S.A. To find out if this is the best ETF for you, visit our IPO Investing page.