Things just got Seres in the IPO market.
Thirteen companies went public this past week, more than any week since October 2014. Seres Therapeutics skyrocketed 186% on its debut - the highest first-day pop since January 2014. The thirteen IPOs raised $1.9 billion, less than expected because 70% priced below the midpoint, compared to 0% last week. Five ended at or below the offer price.
The average return for 2015 IPOs fell to +17% after it had been close to +20% for four weeks, and the NASDAQ Composite and S&P 500 both ended the week down 1%. As many as five IPOs could price on Monday and Tuesday, which would make it the busiest month for IPOs in over 10 years. 99 companies have gone public in the US this year and the momentum we have heading into the third quarter suggests that the IPO market could surpass the 200 mark for the third year in a row. For a look at the international IPO market, view our 2Q 2015 Global IPO Review.
Guts and glory: Microbiome biotech up 186% on day one
Seres Therapeutics (MCRB) priced above the range and nearly tripled on its Friday debut. The company's 186% pop is the third-highest in the post-2000 era. After a successful 30-patient Phase 1b/2 trial for delivering healthy gut bacteria (derived from human stool) to fight the widespread and deadly C. difficile infection, the company now has over $225 million in cash as it enters a Phase 2 trial. Formed by Flagship Ventures, investors may have had a gut feeling about buying into a biotech with backing from Nestlé Health, Fidelity, Mayo Clinic, OrbiMed, BlackRock, T. Rowe and RA Capital. It is the fourth Goldman Sachs-led biotech IPO in the past 10 years and the group averages +164%, led by last year's Atara Biotherapeutics (ATRA), up 378%.
The biotech sector is still hot. MCRB had stayed below $35 (+95%) until an end-of-day rally.
Keep an eye on it: High-growth glaucoma gadget maker Glaukos up 56%
Glaukos (GKOS), which sells the smallest medical device ever approved by the FDA, had big returns for IPO investors. The glaucoma device maker priced above the range and traded up 73% on Thursday, but fell to a 56% gain by week-end, highlighting the fact that retail investors should be cautious around high-flying IPOs. Backed by marquee health care VCs such as Montreux, Versant, Domain, OrbiMed, Frazier and InterWest, it grew revenue by 78% year-over-year at an 81% gross margin as it offers the first meaningful advance in treating glaucoma in over 30 years.
3 software IPOs begin trading on Friday and return a cool 10-20%
None of the week's three software IPOs priced above the proposed midpoint - unusual given that over 50% typically do. This is a healthy sign for IPO investors, who appear to be weighing growth prospects and potential near-term losses instead of buying into hype fueled by buzzwords like "Internet-of-Things."
Alarm.com Holdings (ALRM) was the only tech IPO to price at its midpoint and the company gained 21% on Friday. Backed by TCV and ABS Capital, it is the first consumer-focused IPO to offer a "connected home" solution for remotely managing security systems and other devices. Increased competition (ADT, Honeywell, AT&T, Google) may be pressuring margins, but the profitable company grew sales 25% in the last quarter. AppFolio (APPF) priced at the low end and had the second-highest return of the three, up 17%. The Goleta, CA-based provider of property management software competes with larger vendors RealPage (NASDAQ: RP) and Yardi, though it has grown revenue at an impressive 91% CAGR since 2012. The deal was more than 25% covered by primary shareholder IGSB. Xactly (XTLY) had to be priced exactly right. A close competitor to Callidus Software (NASDAQ: CALD), it received the steepest valuation cut of the tech IPOs - 27% below the midpoint - and its stock had the lowest gain, up 9%. Backed by Rembrandt Venture Partners, the San Jose, CA-based company's software automatically ties compensation to employee performance, which helps sales people remember to Always Be Closing.
3 LBOs feature TransUnion: And it's greatly to its credit!
TransUnion (TRU) became the year's largest leveraged buyout to go public when it priced above its midpoint and raised $665 million. The stock was up 10% by Friday. Bought by Goldman Sachs and Advent International for $3.3 billion in 2012, the company went public at a $6.4 billion enterprise value and was up 10% by Friday. TransUnion is the last major US credit bureau to go public after Equifax (NYSE: EFX) and Experian (LON: EXPN). Its high debt and lack of a dividend may turn off some investors, but the company boasted sales growth of 15% to $350 million in the 1Q15 as it hopes to turn credit reports into credit data analytics.
Milacron (MCRN), the week's second-largest IPO, raised $286 million at a $1.4 billion market cap by pricing at the low end of the range. It broke issue on its first day but ended the week at its offer price. The company was bought by CCMP Capital after its 2012 bankruptcy for $200 million and then made a $965 million acquisition in 2013. While Milacron should benefit from the near-term replacement of old plastics equipment and cost-cutting initiatives, it must pay down nearly $1 billion in debt while sales are hurt by a strong US dollar. Medical imaging products company Lantheus (LNTH), which previously postponed an IPO attempt in July 2014, slashed its proposed valuation and ended the week up 7%. Even as it gained share and improved margins since last year, IPO investors may have concerns over the loss of its contract with #1 customer Cardinal Health (NYSE: CAH), the recent US entrance of a major competitor and its massive debt burden ($175 million market cap at IPO and $525 million EV). Avista bought the company in 2008 for $525 million and benefited from a $150 million stock repurchase and dividend in 2011.
2 energy IPOs: Oil tanker sinks and ethanol terminal runs out of gas
Gener8 Maritime (GNRT) failed to generate much interest. It priced 22% below the midpoint and fell 4% by Friday, despite positive trading from 2015's other oil tanker IPO, Euronav (EURN). The oil tanker operator was recently formed from the merger of Navig8 Group and General Maritime, which was taken out of bankruptcy in 2011 by Oaktree (NYSE: OAK) and others. It does not offer a dividend. Green Plains Partners LP (GPP) did not make its partners very much green this week as it priced 25% below the midpoint and traded flat. Formed by ethanol producer Green Plains (NASDAQ: GPRE), the company owns ethanol storage assets and now offers an annual yield of over 10%, though it relies entirely on its parent and does not have a clear pathway for growing distributions. Another energy MLP, CNX Coal Resources (CNXC), also cut its valuation by 25% before pushing the IPO to next week.
Three small IPOs
Catabasis Pharmaceuticals (CATB) priced below its range and raised $60 million at a $185 million market cap. The company is developing therapies based on its proprietary delivery platform, and claims that its Duchenne muscular dystrophy drug candidate could address a much larger population than others in development. Yulong Eco-Materials (YECO), a leading brick and concrete maker in the Chinese city of Pingdingshan (population over 5 million), priced its long-delayed IPO at the low end and fell 1%. Fibrocystic breast biotech BioPharmX (BPMX) uplisted to the NASDAQ after cutting its valuation and declined 2% by week-end.
Chicken producer Wayne Farms (WNFM) had planned to go public at a $1 billion valuation but chickened out as it postponed a $250 million IPO.
|13 IPOs during the week of June 22, 2015|
|Company (Ticker)||Business||Deal size ($mm)||IPO price vs. midpoint||1st-day pop||Return at 6/26|
|Seres Therapeutics (MCRB)||Biotech: Gut bacterial infections||$134||13%||186%||186%|
|Glaukos (GKOS)||Micro glaucoma devices||$108||29%||73%||56%|
|Alarm.com Holdings (ALRM)||Software: Connected home security||$98||0%||21%||21%|
|AppFolio (APPF)||Software: Property management||$74||-8%||17%||17%|
|Catabasis Pharmaceuticals (CATB)||Biotech: DMD & cholesterol||$60||-14%||8%||12%|
|TransUnion (TRU)||LBO: Major US credit bureau||$665||2%||13%||10%|
||Software: Sales incentives||$56||-27%||9%||9%|
|Lantheus Holdings (LNTH)||LBO: Medical imaging agents||$65||-37%||13%||7%|
|Green Plains Partners LP (GPP)
||Ethanol storage LP
|Milacron Holdings (MCRN)
||LBO: Plastics equipment||$286||-5%||-2%||0%|
|Yulong Eco-Materials (YECO)
||Chinese brick maker||$14||-7%||-1%||-1%|
|BioPharmX (BPMX)||Biotech: Fibrocystic breasts||$10||-8%||-4%||-2%|
|Gener8 Maritime (GNRT)||Oil tankers||$210||-22%||-6%||-4%|
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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 up 8% year-to-date, compared to 2% for the S&P 500. Renaissance Capital's IPO ETF (NYSE: IPO) tracks the index, and top ETF holdings include Alibaba (BABA), Twitter (TWTR) and Hilton Worldwide (HLT). The Renaissance International IPO Index has traded up 9% year-to-date, compared to 6% for the ACWX. Renaissance Capital’s International IPO ETF (NYSE: IPOS) tracks the index, and top ETF Holdings include Altice and Deutsche Annington. To find out if this is the best ETF for you, visit our IPO Investing page.