Reviewing 6 Recent IPO Transactions

by: IPO Candy

Six deals priced recently. Here is a quick rundown. Based on deals in marketing so far in April it looks like the same sectors will be active going forward:

Tetraphase Pharma (TTPH): This is another new antibiotic drug developer working to solve the problem of increasing resistance to existing antibiotic therapies. Tetraphase has a lead drug candidate ready for a pivotal Phase 3 trial. The management team is better than average with backgrounds from Merck (NYSE:MRK), Abbott (NYSE:ABT), Immulogic, Roche (OTCQX:RHHBY) and Vertex (NASDAQ:VRTX) to name some. The company is in Watertown, MA and has been funded with $80M from 6 investment firms with considerable industry expertise. The deal is being bought by an odd group of bankers with Barclays and BMO as co-leads. The deal priced well below the $11 mid-point at $7 which results in a market cap of about $120M. The shares have so far traded flat but may benefit from increasing attention and usage as US healthcare gets modernized and improved.

Model N (MODN): This is an enterprise software company offering a solution for "revenue management" which is purported to help companies optimize their pricing, contracts, customer incentives and compliance. Since these processes are typically far from optimal, a technology solution can offer attractive ROI. Model N has been most successful in the technology and life sciences industries so far. Revenues are growing at 30% and the company is at a $100M revenue run rate. We may publish a more complete analysis of Model N. The valuation seems reasonable but these all-encompassing enterprise software sales are fraught with challenges, especially for a very small company. The deal was well received - pricing above the range at $15.50 and trading up to $20 in the after market. This puts the market cap at $430M or a little over 4x forward sales. Looking longer term Model N, along with a number of other recent public companies like Service Now (NYSE:NOW) and Guidewire (NYSE:GWRE) are attractive acquisitions for market leaders like Oracle (NASDAQ:ORCL).

Aviv REIT (AVIV): Aviv specializes in properties for post-acute and long-term care senior nursing facilities, with 258 properties sprinkled across 29 states. Their rent role (triple net lease) is $128M. Yield chasers loved the proposed dividend yield of 7.6% and allowed this one to price at the high end of the range ($20) and trade up to $23.80 from there putting the yield at 6%. There is a durable and continuing trend away from cash and fixed income assets into high yield equities in general and REIT stocks in particular. AVIV will benefit from this money flow.

Enanta Pharma (ENTA): This is a drug development company with many "irons in the fire" including a lead candidate for Hepatitis C. The company has invested $280M so far and has an impressive pipeline of milestone payments to further fund drug development. Enanta has over $60M in cash on the balance sheet. The deal priced at the low end of the range at $14 but traded right up to a tight range at $17, and makes the "IPO discount" seem very exact in this case. Management points out that the space for potential drugs to treat HepC is "very crowded" which seems to put the company at a bit of a disadvantage at the start. Still this is a company with strong science and a solid team, which long-term investors appreciate in the highly volatile biotechnology space.

Marin Software (MRIN): Marin offers a software platform for online advertising management. Revenues are growing at over 60% and reached $60M for the year 2012. Basically, Marin automates a number of the tedious and manual procedures used in operating an online advertising campaign and helps customers spend more time in analysis and strategy. The solution is attractive for companies spending over $1M per year on advertising. Marin uses a SaaS model which has many implications, including making large losses due to high sales and marketing costs relative to reported revenues. The company priced above the range at $14. In the aftermarket the shares zoomed to $20 before dipping to $15 and settling out (for now) at $16.50. At well over 10x sales MRIN is certainly not cheap but compares with other SaaS software companies like Workday (NYSE:WDAY) (38x), NetSuite (NYSE:N) (18x), Guidewire (9x) and industry leader Salesforce (NYSE:CRM) at 8.5x.

West Corp (WSTC): West is a communication services provider with two main businesses: unified communications for corporations (think audio conferencing, webcasting, hosted phone systems) and emergency communications (911 and other calls.) West is a big, acquisitive company with over $2.6B in revenues and over $500M of adjusted operating income. The deal priced at $20, well-below the $23.50 mid-point. At the current price of $19 the market cap is $1.6B. West will be operating with $3.4B of net debt post the transaction for an EV of $5B or about 2x sales. Thankfully for this deal there is a dividend planned of $0.90/year for a decent yield of 4.7%.

Overall these deals highlight the steady mix we see in the current pipeline and recent filings - technology, healthcare and high yield deals - are in real estate, finance and energy.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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