U.S. IPO Recap: 6 Deals Price, Heavy Deal Flow Continues Into August

by: Renaissance Capital IPO Research

The U.S. IPO market continued at a quick pace last week, with six deals raising over $1.6 billion. Sprouts Farmers Market (NASDAQ:SFM) was the week’s winner with a 123% first-day pop, the best first-day return since March 2011. Control4 (NASDAQ:CTRL) and Athlon Energy (NYSE:ATHL) also performed strongly in their market debuts, both posting greater than 25% gains. New deal flow stayed heavy as well, with nine deals launching last week and 11 deals scheduled to price in the coming week. Six companies submitted initial filings last week, including Plains GP Holdings, LP ((NYSE:PAGP)), which filed with a deal size of $1 billion.

Sprouts springs, IPO pricing activity remains robust

Sprouts Farmers Market, which operates over 160 natural and organic grocery stores in eight southwestern states, soared nearly 123% in its market debut on Thursday, delivering the best first-day pop since Qihoo 360 Technology (NYSE:QIHU) gained 134% on March 30, 2011. Athlon Energy (ATHL), an Apollo-backed oil and gas E&P operating in the Permian Basin, and Control4 (CTRL), a leading provider of in-home automation and control software solutions, also traded well in their market debuts, gaining 38% and 25%, respectively.

American Homes 4 Rent (NYSE:AMH), a REIT that acquires, renovates and leases single-family residential homes in the U.S., completed the largest deal of the week, despite the recent difficulties of close peers American Residential Properties (NYSE:ARPI), which is down 16% since its May 2013 IPO, and Colony American Homes (NYSE:CAHS), which postponed an IPO in June 2013.

Although the biotech market has been hot this summer, Iroko Phamaceuticals (IRKO), a drug company developing high-efficacy, low-dose NSAIDs, postponed and then withdrew its $101 million deal last week. Even though Iroko is targeting a large addressable market, the company's strategy to simply improve existing pain therapies, an approach that has historically been met with limited success, raises questions over its ability to take market share from well-established generics.

Ardmore Shipping (NYSE:ASC), a petroleum transporter, was the week’s worst performer, pricing below the low end of its range and trading down 2%. Although the rates for tankers are expected to continue to increase because of rising US exports, the expirations of all of Ardmore's current charters over the next twelve months still create near-term risk.

IPO pricings (week of July 29, 2013)
Company (Ticker) Business Deal Size ($mm) Price vs. Midpoint Return
Sprouts Farmers Market (SFM) Natural grocer $333 20% 122%
Athlon Energy (ATHL) Oil and gas E&P $316 5% 38%
Control4 (CTRL) In-home automation $64 0% 25%
Marrone Bio Innovations (NASDAQ:MBII) Green pest management $57 -23% 15%
American Homes 4 Rent (AMH) Residential REIT $706 -6% -1%
Ardmore Shipping (ASC) Petroleum transporter $140 -13% -2%

Envision Healthcare launches $753 million deal, two MLPs set terms

Clayton, Dublier & Rice’s Envision Healthcare (NYSE:EVH), the leading provider of outsourced medical services, set terms for a $753 million deal that values the company at a market cap of approximately $3.9 billion. Envision Healthcare operates primarily through its two brands, AMR and EmCare, and was acquired by CD&R for $3.2 billion in May of 2011.

The energy sector, which has seen a sharp increase in IPO activity since mid-July (four completed deals vs. two in the previous five months), had three more deals launch last week. Frank’s International (NYSE:FI), a global provider of tubular services to the oil and gas industry, is looking to raise $600 million, and two midstream MLPs, QEP Midstream Partners, LP (NYSE:QEPM) and World Point Terminals, LP (NYSE:WPT), are looking to raise $400 million and $175 million, respectively.

Stock Building Supply (STCK), which launched a $150 million deal, manufactures and distributes wood products in the U.S.. It is a close peer to Boise Cascade Company (NYSE:BCC), which went public in February of 2013 and has traded up 26% from its IPO price.

IPOs setting terms (week of July 29, 2013)
Company (Ticker) Business Deal Size ($mm) LTM Sales ($mm)
Envision Healthcare (EVH) Outsourced medical services $753 $6,278
Frank's International (FI) Oil and gas services $600 $1,052
QEP Midstream Partners, LP (QEPM) Midstream energy assets $400 $160
World Point Terminals, LP (WPT) Oil storage terminal operator $175 $74
Stock Building Supply (STCK) Wood products $150 $1,003
Intrexon (NYSE:XON) Synthetic biology tech $125 $16
Fox Factory Holding (NASDAQ:FOXF) Suspension products $120 $245
Cvent (NYSE:CVT) Event management software $101 $90
Sophiris Bio (NASDAQ:SPHS) Urological disease biotech $65 $0

More than $2 billion added to the pipeline by six new filers

Six companies made initial filings last week. Plains GP Holdings, which filed to raise $1 billion, will own interests in Plains All American Pipeline LP (NYSE:PAA), one of the largest midstream crude oil companies in North America. CommScope, a global provider of connectivity and infrastructure solutions for wireless, business enterprise and residential broadband networks, was taken private by The Carlyle Group for $3.9 billion in January 2011. It has since made three acquisitions for $142 million and has shifted from selling components to offering more integrated solutions. Houghton Mifflin Harcourt, one of the largest providers of educational materials in the US, filed for bankruptcy in 2012 and is backed by a group that includes Paulson & Co. and BlackRock.

Two venture capital-backed companies also entered the pipeline. FireEye, which provides malware protection to enterprises, is backed by Sequoia and Norwest. Revenue has grown at a 92% CAGR since 2010 and reached $33 million in the 2Q13. Foundation Medicine, which sells a diagnostic tool for cancer, is backed by Third Rock, Kleiner Perkins and Google Ventures.

New IPO filers (week of July 29, 2013)
Company (Ticker) Business Deal Size ($mm) LTM Sales ($mm)
Plains GP Holdings, LP (PAGP) Plains All American GP $1,000 $39,199
CommScope (NASDAQ:COMM) Wireless infrastructure $750 $3,488
HMH Holdings (NASDAQ:HMHC) Education materials $250 $1,306
FireEye (NASDAQ:FEYE) Cyber security $175 $115
Foundation Medicine (NASDAQ:FMI) Cancer diagnostics $86 $15
Pioneer Power Solutions (NASDAQ:PPSI) Electrical transformers $9 $86

IPO market snapshot

The 116 IPOs in 2013 have raised $25.2 billion and produced an average return of 31%. There have been 67 IPOs in the past 90 days, with total proceeds of $12.4 billion and an average return of 29%. The active IPO pipeline includes 100 companies looking to raise $32.0 billion.