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US IPO Weekly Recap: Year's largest IPO First Data raises $2.6 billion and falls flat
Analyst IPO Market Commentary
The bigger they are, the harder they fall - and the more notable their absence.
First Data raised $2.6 billion in the year's largest IPO, but broke issue on the first day. Two small biotechs priced IPOs that were 1/100th the size of First Data's offering. All three deals underperfomed, ranging from a decline of 4% to a gain of 0.5%. For the second week in a row, a $1+ billion IPO postponed, as Albertsons/Safeway failed to find enough buyers for the high-debt and low-margin grocery chain. One small IPO withdrew and four pushed back to
. They may have a hard time getting noticed with
) leading the pack.
Despite recent valuation challenges and mediocre trading, this month is on pace to be the busiest October for
new initial filings
in over ten years, helped by a VIX that is now comfortably below 20.
First-in-class but forever in your debt: First Data raises $2.6 billion, but can it deliver/delever?
) slashed its offer price by 16% and raised $2.6 billion, making it over twice the size of the year's second-largest IPO (Tallgrass Energy GP;
). First Data is the world's largest payments processor, working with over 6 million business locations and processing nearly $2 trillion in transactions annually. It had been one of the few remaining "mega-LBOs" still private from the 2005-2007 era, and an asset that PE backer KKR had long wanted to get off its balance sheet. It came in several turns below its closest peers on price/earnings, and with the help of IPO proceeds and a massive cash flow, the company now plans to ratchet up earnings by paying down its $19 billion in debt. New cloud-based POS system Clover could be an attractive route for growth, but First Data will increasingly face competition from new entrants, including
), which filed this past week to raise $275 million in the unicorn's highly-anticipated IPO.
Two delayed biotechs price small IPOs
Biotechs tend to have a greater sense of urgency when going public - and a greater need for cash. Both
) had been on the calendar for weeks, but raised $25 million and $26 million, respectively. Depression biotech Cerecor added dilutive warrants for IPO buyers and priced at the midpoint, then ended the week down 4%. Rare endocrine disease biotech Strongbridge, which boasts impressive backers such as TVM Capital, RA Capital and NEA, slashed its proposed market cap by 50% while insiders agreed to purchase up to 80% of the deal. With as little as $5 million raised in the IPO, Strongbridge's trading volume was far below average.
SPACs are back: Two blank check companies go public
Although companies that have demonstrated an operating history continue to be challenged, the IPO window appears to be open to blank check companies.
Capitol Acquisition III
), led and owned by entrepreneur Mark Ein, raised $350 million this week. It is the sixth SPAC to raise $350 million or more in 2015, compared to just one during the prior five years. China-focused
Pacific Special Acquisition
) raised $50 million. It is the most active year for SPACs since 2007.
Cleanup in the IPO aisle: Albertsons/Safeway delays $1.6 billion IPO
), the third largest US grocer behind Wal-Mart and Kroger, postponed its $1.6 billion IPO as worries over Wal-Mart's revised earnings forecast lowered demand for its competitor's IPO. Originally targeting a range of $23-26, PE-owner Cerberus Capital Management reportedly refused to sell the deal under $20, and will try again to round up interest in the coming weeks. Farming REIT
American Farmland Company
) and semiconductor company
) pushed back their IPOs to next week, just as
Sole Elite Group
) again delayed their IPOs. Microcap artificial heart maker
) withdrew its $28 million IPO.
Including Digicel (
)'s postponed $1.8 billion IPO in the prior week, the two largest deals in the IPO pipeline have both failed to price. News broke this past week that Neiman Marcus (
) is delaying its potentially-$1 billion IPO until 2016. These delays, along with First Data's tepid performance, do not bode well for high-debt LBOs that had planned to go public in the 4Q15, such as
). It appears more likely that the Fed will also push back its rate hike into 2016, providing them some breathing room.
3 IPOs during the week of October 12, 2015
Deal size ($mm)
IPO price vs. midpoint
Return at 10/16
Strongbridge Biopharma (
First Data (
Largest payment processor
Biotech: Depression therapies
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IPO Market Snapshot
Just 43% of 2015 IPOs are trading above issue, and the average return is -2%. IPOs in the past 90 days have fared slightly better, with 50% above the offer price and an average return of 2%. The Renaissance IPO Indices are market cap weighted baskets of newly public companies. The Renaissance IPO Index is down 6% year-to-date, compared to -1% for the S&P 500. Renaissance Capital's
(NYSE: IPO) tracks the index, and
top ETF holdings
include Alibaba (
), Twitter (
) and Hilton Worldwide (
). The Renaissance International IPO Index is flat year-to-date, compared to -2% for the ACWX. Renaissance Capital’s International
(NYSE: IPOS) tracks the index, and
top ETF Holdings
include Recruit Holdings and Samsung C+T.
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