U.S. IPO Recap: Foundation Medicine Soars, Chrysler Revs Up For An IPO

by: Renaissance Capital IPO Research

Last week saw high levels of activity in the IPO market, as eleven companies priced, making this month the first September to have 20 deals since September of 2000. Health care and technology companies continued to dominate the space, with nine of the week’s eleven offerings coming from these sectors. Cancer diagnostic company Foundation Medicine (NASDAQ:FMI) delivered the best performance of the week, pricing above its range and almost doubling in value on its first day of trading. An additional five companies were added to the calendar, and ten new filers, including Chrysler (CYSR.RC), joined the IPO pipeline.

Cloud companies outperform, Ophthotech completes largest biotech deal of the year

Companies delivering cloud-based services continued to deliver strong performances last week. RingCentral (NYSE:RNG), a cloud-based phone services provider for small businesses, and Covisint (NASDAQ:COVS), a spinoff of Compuware that provides a cloud-based data integration platform primarily to auto and health care companies, both gained over 20% in their first days of trading. These companies follow in the footsteps of recent successful cloud tech IPOs from Benefitfocus (NASDAQ:BNFT) (+89%) and Cvent (NYSE:CVT) (+70%).

The health care sector also continued to perform well; cancer diagnostics company Foundation Medicine attracted investors with its rapid adoption rates and slew of well-known venture backers [Third Rock, Kleiner, Google (NASDAQ:GOOG), Bill Gates] and traded up 96% in its first day of trading. Opthotech (NASDAQ:OPHT), a biotech developing treatments for wet AMD, garnered attention with its experienced management team of Eyetech vets and raised $167 million to fund its Phase III trials in the largest biotech IPO of the year.

The largest health care deal of the week came from Premier (NASDAQ:PINC), a member-owned health care alliance offering supply chain and performance services. While the company’s 14% first-day pop seems average compared to some of the week’s top performers, Premier logged the second best first-day return among IPOs raising more than $750 million YTD, trailing only Zoetis, as larger, more mature companies generally deliver more muted first-day returns (e.g. 8% average first-day return for deals larger than $500 million vs. 16% average for deals smaller than $500 million).

IPO pricings (week of September 23, 2013)
Company (Ticker) Business Deal Size ($mm) Price vs. Midpoint Return
Foundation Medicine (FMI) Cancer diagnostics $106 20% 98%
Montage Technology (NASDAQ:MONT) Set-top box chips $71 -23% 52%
RingCentral (RNG) Cloud-based phone services $98 8% 40%
Ophthotech (OPHT) Eye disease biotech $167 26% 33%
Enzymotec (NASDAQ:ENZY) Nutrition ingredients $62 -18% 30%
Covisint (COVS) Data sharing platform $64 0% 26%
Premier (PINC) Heathcare alliance $760 10% 17%
Pattern Energy Group (NASDAQ:PEGI) Wind power $352 10% 6%
Applied Optoelectronics (NASDAQ:AAOI) Fiber-optic networking products $36 -29% 1%
Evoke Pharma (NASDAQ:EVOK) Gastrointestinal disease biotech $25 -8% 0%
Violin Memory (NYSE:VMEM) Flash-based storage arrays $162 0% -22%

Five deals added to the calendar, Potbelly looks to capitalize on the fast-casual craze

The five deals that set terms this week include yield plays from OCI Partners, which produces methanol, data center operator QTS Realty Trust (NYSE:QTS), and Cherry Hill Mortgage Investment (NYSE:CHMI), a mortgage REIT, as well as live electronic music event producer SFX Entertainment (NASDAQ:SFXE). SFX Entertainment is headed by media entrepreneur Robert Sillerman and produces entertainment content focused exclusively on electronic music culture. QTS is the first data center REIT to launch since CyrusOne (NASDAQ:CONE) went public in January; CyrusOne traded up 12% on its first day but has traded off in the aftermarket. Potbelly, a sandwich shop operator hoping follow in the footsteps of Noodles & Company’s (NASDAQ:NDLS) successful June IPO, launched a $75 million deal.

IPOs setting terms (week of September 23, 2013)
Company (Ticker) Business Deal Size ($mm) LTM Sales ($mm)
OCI Partners LP (NYSE:OCIP) Methanol producer $350 $378
QTS Realty Trust (QTS) Data center operator $349 $159
SFX Entertainment (SFXE) Live electronic music events $200 $185
Cherry Hill Mortgage Investment (CHMI) Mortgage REIT $130 $0
Potbelly (NASDAQ:PBPB) Sandwich shop operator $75 $290

Chrysler joins the IPO pipeline

Global car manufacturer Chrysler submitted its initial filing this week after months of speculation over the company’s plans. The company is controlled by Fiat (59% pre-IPO stake) and the United Auto Workers trust (41%). Fiat had previously tried to buy out the UAW's share, but the two parties have not been able to reach an agreement on valuation, so the UAW has exercised its right to go forward with an IPO, reportedly against Fiat's wishes. Other notable filers include BI-LO/Winn-Dixie holding company Southeastern Grocers (SEG), high-end clothing retailer Vince (NYSE:VNCE) and Chinese online marketplace 58.com (NYSE:WUBA).

New IPO filers (week of September 23, 2013)
Company (Ticker) Business Deal Size ($mm) LTM Sales ($mm)
Chrysler Group (CYSR.RC) Global car manufacturer $1,000* $66,011
Southeastern Grocers (SEG) Grocery store operator $500 $10,110
Devon Midstream Partners LP (DVNM) Midstream natural gas assets $400 $2,204
Vince (VNCE) High-end clothing line $200 $264
CatchMark Timber Trust ((NYSE:CTT)) Timberland REIT $173 $35
58.com (WUBA) Chinese online marketplace $150 $107
Relypsa (RLYP.RC) Late-stage biotech $127 $0
Marcus & Millichap ((NYSE:MMI)) Commercial real estate brokerage $104 $414
Evogene ((NYSE:EVGN)) Genetically enhanced seeds $60 $18
Biocept Laboratories (BIOC) Cancer diagnositics $23 $0
*Deal size is RC estimate.

IPO market snapshot

The 151 IPOs in 2013 have raised $31.8 billion and produced an average return of 36%. There have been 59 IPOs in the past 90 days, with total proceeds of $11.2 billion and an average return of 27%. The active IPO pipeline includes 115 companies looking to raise $36.4 billion.