Castlight Health (NYSE:CSLT) completed the fourth technology IPO of the year, and its 149% first day return brought the sector's average up to 95% for 2014. Castlight was also the fourth this year to gain at least 100% on the day of its IPO. The first quarter has demonstrated investor demand for new offerings through higher activity than any Q1 in over a decade in terms of filing and pricing activity. And while this quarter was largely shaped by its biotech activity, last week's launches and filings suggested a broadening of the market as a diverse group of companies planned IPOs. Yet it remains unclear how the recent sell-off across equity markets will affect companies' IPO plans.
Last week saw a slight uptick in biotech gains while Castlight kicked off a series of six tech IPOs on the calendar for this week. Castlight's debut represented a convergence of the most active (health care) and highest returning (tech) sectors of 2014. It was also the first of several IPOs with services for enterprises' human resources, including TriNet (NYSE:TNET), Globoforce (Pending:THNX), Paylocity (NASDAQ:PCTY) and Paycom (NYSE:PAYC). Last week also saw a number of initial filings for large and notable IPOs, including Synchrony Financial (NYSE:SYF), which could raise as much as $4 billion, Weibo ($500 million) and Virtu Financial (NASDAQ:VIRT) ($250 million).
Castlight Health and four biotechs price
Castlight Health provides large self-insured customers like Wal-Mart and Microsoft with software that allows their employees to make smarter health care decisions based on individual preferences and circumstances. Its IPO followed two other highly successful tech IPOs, Coupons.com (COUP) (66% return) and Varonis Systems (NASDAQ:VRNS) (91%). Castlight's performance on Friday was particularly impressive as it priced 60% above its original midpoint, the highest premium since Splunk (NASDAQ:SPLK) in April 2012.
|IPO pricings (week of March 10, 2014)|
|Company (Ticker)||Business||Deal Size ($mm)||IPO Price vs. Midpoint||Return as of 3/14|
|Castlight Health (CSLT)||SaaS for employee health care comparison||$178||60%||149%|
|Achaogen (NASDAQ:AKAO)||Biotech: antibiotics for drug resistant infections||$72||-8%||35%|
|Dipexium Pharmaceuticals (NASDAQ:DPRX)||Biotech: antibiotic for diabetic foot ulcers||$33||-8%||12%|
|Ignyta (NASDAQ:RXDX)||Biotech: targeted cancer therapeutics||$48||1%||11%|
|Galmed Pharmaceuticals (NASDAQ:GLMD)||Biotech: liver disease (NYSEARCA:NASH) treatments||$38||4%||9%|
Ten companies set terms for an IPO
Technology IPOs now outnumber health care IPOs on the calendar with the addition of four tech firms that set terms last week. King Digital Entertainment (BATS:KING) is poised to raise $500 million in an IPO set for next week. The game maker, known for its stellar mobile hit Candy Crush Saga, is offering an initial float of only 7% of its total market cap. While there are major differences between the two, King will be compared to Zynga, which has been unable to replicate its past success since its IPO in December 2011. King has shown more ability to capture mobile users (73% of revenue), but it is heavily reliant on Candy Crush (78% of revenue).
Like Castlight and Varonis, the three other tech firms have an enterprise focus. A10 Networks (NYSE:ATEN) improves the network speed and security of well-known clients like Microsoft, Comcast and LinkedIn. Borderfree (NASDAQ:BRDR) provides an e-commerce platform for US retailers looking to sell products abroad. Globoforce's (THNX) SaaS is sold to human resources departments to track and reward employee work achievements in order to produce better motivated personnel. TriNet Group (TNET) allows small and medium sized-businesses to outsource their human resources and access relevant information in the cloud. Two noteworthy non-tech firms also set terms. Nord Anglia Education (NYSE:NORD) is a private equity-backed operator of 27 private schools located in four continents. Square 1 Financial (NASDAQ:SQBK) provides commercial banking for venture firms.
|IPO terms filings (week of March 10, 2014)|
|Company (Ticker)||Business||Deal Size ($mm)||LTM Sales ($mm)|
|King Digital Entertainment (KING)||Mobile and social game developer||$500||$1,884|
|Nord Anglia Education (NORD)||Private schools teaching grades K-12||$304||$370|
|TriNet Group (TNET)||Outsourced HR for small businesses||$240||$1,644|
|A10 Networks (ATEN)||Devices that improve network performance||$175||$142|
|Square 1 Financial (SQBK)||Commercial banking for venture firms||$94||$102|
|Versartis (NASDAQ:VSAR)||Treatments for growth hormone deficiency||$81||$0|
|Globoforce (THNX)||Enterprise SaaS for employee achievements||$75||$187|
|Borderfree (BRDR)||International e-commerce platform for US retailers||$75||$110|
|Bluerock Residential Growth REIT (NYSEMKT:BRG)||Owns interest in nine properties in the southeastern US||$50||$22|
|Applied Genetic Technologies (NASDAQ:AGTC)||Biotech: treatments for orphan eye diseases||$50||$1|
Twelve companies file for an IPO including GE Capital, Weibo and Virtu
Activity in the financial services sector has picked up, most notably with the initial filing of Synchrony Financial (formerly GE Capital), the consumer lending arm spun out of General Electric. The listed $100 million offering size is likely a placeholder for a deal that we estimate could raise as much as $4 billion, making it a contender for the largest IPO since Facebook in May 2012. Virtu Financial, a technology-driven high frequency trading firm and market maker, is set to be the first such trading firm to go public. Virtu boasts that it had only one day of losses in the past five years. Opus (NASDAQ:OPB) is a private equity-backed California commercial bank.
Weibo and Leju Holdings (LEJU) joined the list of Chinese companies planning to go public in the US (others include KANG, TEDU and JD.RC). The Twitter-like Weibo filed for a US IPO as a spinoff of Sina (NASDAQ:SINA). Leju Holdings, which provides online advertising and real estate services for properties across China, is a spinoff of E-House (NYSE:EJ). Leju was formerly a NASDAQ-listed joint venture owned by both Sina and E-House until E-House offered cash and equity to take it private, making Sina the largest shareholder. On Sunday, Alibaba officially announced it would be looking to launch its IPO in the US. The last five Chinese Internet companies to go public in the US have each gained over 90% since launching; the group's average return is 160%.
The pipeline now has two restaurants looking to go public with the initial filings of Zoe's Kitchen (NYSE:ZOES) and Papa Murphy's (NASDAQ:FRSH). Zoe's Kitchen, a high growth Mediterranean-themed fast casual restaurant, will draw comparisons with last year's Noodles & Company and Potbelly, both of which had over 100% pops on their first day of trading. Papa Murphy's is a private equity-backed pizza chain known for made-to-order pizzas that consumers cook at home. Phibro Animal Health (NASDAQ:PAHC) provides vaccines and nutrient-enhanced feed for livestock,. Paycom, a SaaS provider for human capital management, is a direct competitor to Paylocity (pricing on Tuesday/this week). In addition, three small medical device companies filed, including two that develop enhanced stent grafts.
|IPO initial filings (week of March 10, 2014)|
|Company (Ticker)||Business||Deal Size ($mm)||LTM Sales ($mm)|
|Synchrony Financial (SYF)||US consumer lending arm of GE||$4,000||$10,571|
|China's largest microblogging service||$500||$188|
|Opus Bank (OPB)||California-chartered commercial bank||$400||$145|
|Virtu Financial (VIRT)||High-frequency trader and market maker||$250||$665|
|Phibro Animal Health (PAHC)||Food and medicine for farm animals||$230||$662|
|Trinseo S.A. (NYSE:TSE)||Bain-backed global plastics manufacturer||$200||$5,307|
|Leju Holdings (LEJU)||Chinese online-to-offline real estate services||$200||$335|
|K2M Group Holdings (NASDAQ:KTWO)||Medical devices for use in spine surgeries||$100||$158|
|Paycom (PAYC)||SaaS for payroll and HR management||$100||$108|
|TriVascular Technologies (NASDAQ:TRIV)||Stent grafts for endovascular aortic repair||$100||$20|
|Zoe's Kitchen (ZOES)||Fast-casual Mediterranean restaurants||$81||$116|
|Lombard Medical (NASDAQ:EVAR)||Stent grafts for endovascular aorta repair||$80||$7|
|Cerulean Pharma (NASDAQ:CERU)||Biotech: targeted liver and ovarian cancer therapies||$75||$0|
|Papa Murphy's (FRSH)||"Take 'N' Bake" pizza chain||$70||$80|
IPO market snapshot
So far this year, 45 IPOs have raised $7.6 billion and produced an average first day return of 20%. The Renaissance IPO ETF (symbol: IPO), a cap-weighted basket of newly public companies and indicator of post-IPO performance, has gained 5% compared with -0.4% for the S&P 500. Over the last 30 days, the IPO ETF has risen 1% compared with 0.1% for the S&P 500, suggesting that the IPO market remains receptive to new issuance. The active IPO pipeline includes 121 companies looking to raise a total of $35 billion.