U.S. IPO Recap: Ares Launches $400 Million IPO

by: Renaissance Capital IPO Research

With a holiday and recent pricing pressure keeping a lid on IPO activity last week, three holdovers from prior weeks priced and fell on their first day of trading, even after pricing at a steep discount to the midpoint. However, the deals brought the monthly pricings total to 30, making this the busiest April in terms of pricings since 2000. Seven companies set terms for May IPOs, including the alternative asset manager Ares Management (NYSE:ARES) and Chinese app developer Cheetah Mobile (NYSE:CMCM). The IPO market continues to support a broader range of industries; biotechs have made up 10% of deals this month, compared to 40% during the first quarter.

Three small IPOs go through after delays and discounts

On average, the three companies that went public last week raised $43 million, priced 49% below the original midpoint and fell 15% on their first day of trading. Lombard Medical (NASDAQ:EVAR), a maker of highly angled stent-grafts, originally planned to list on the NASDAQ two weeks before. The company revived its plans after fellow stent-maker TriVascular Technologies (NASDAQ:TRIV) went public last week and gained 13%. In addition to pricing 47% below its original midpoint, blood diagnostics developer Quotient (QTNTU) attached 0.8 warrants to every share and the units fell 7% on the first day of trading. Viggle (VGGL), whose app tracks TV shows and rewards users for watching them, priced 66% below its thinly traded OTC price and then fell 28% on the first day.

IPO pricings (week of April 21, 2014)
Company (Ticker) Business Deal Size ($mm) IPO Price vs. Midpoint Return as of 4/25
Quotient (QTNTU) More efficient diagnostic blood tests $40 -47% -7%
Lombard Medical (EVAR) Stent-grafts for endovascular aortic repair $55 -33% -9%
Viggle (VGGL) TV show tracking app that rewards users $35 -66% -28%
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Seven new IPOs added to the May calendar

Ares Management, the alternative asset manager known for owning Nieman Marcus and Smart & Final, set terms to price this week. The company has achieved a 5-year AUM CAGR of 24%, holding $74 million at year-end. Over the past two weeks, technology IPO candidates have largely sat on the sidelines as the industry hopes to recover from the selloff in mid-March. Cheetah Mobile is an exception. The Chinese app developer follows the prior week's offerings from Weibo (NASDAQ:WB) and Leju (NYSE:LEJU), which both traded up nearly 20% on the first day but tumbled last week and are now up 9% on average.

K2M Group Holdings (NASDAQ:KTWO), a developer of implants and instruments for complex spine surgeries that was LBO'd in 2010, plans to raise $150 million next week. The company's upcoming IPO prospects were likely boosted by Zimmer Holdings' $13 billion purchase of IPO candidate Biomet. Papa Murphy's (NASDAQ:FRSH), a fast-growing regional pizza franchise known for its "Take 'N' Bake" pizzas, will try to match the strong performance of recent restaurant IPO Zoe's Kitchen (NYSE:ZOES), up 86% from its IPO price. Bone density biotech Radius Health (NASDAQ:RDUS) withdrew its IPO plans in November 2012 ($280 million market cap), but is now on the calendar for next week ($410 million).

IPO terms filings (week of April 21, 2014)
Company (Ticker) Business Deal Size ($mm) LTM Sales ($mm)
Ares Management, LP (ARES) Alternative asset management firm $400 $693
Cheetah Mobile (CMCM) Chinese mobile security app developer $162 $124
K2M Group Holdings (KTWO) Medical devices used in spinal surgeries $150 $158
Alder BioPharmaceuticals (NASDAQ:ALDR) Biotech: antibodies for migraines and arthritis $100 $19
Radius Health (RDUS) Biotech: restoring bone density $75 $0
Papa Murphy's (FRSH) "Take 'N' Bake" pizza chain $70 $80
Ariosa Diagnostics (Pending:AROS) Non-invasive tests for expectant mothers $60 $63
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2011 chemical additive LBO Orion files for a $300 million IPO

Just four companies were added to the IPO pipeline last week, including the German carbon black producer Orion Engineered Holdings, which Triton Advisers and Rhone Group took private in a $1.2 billion LBO in 2011. Carbon black is a component of printing inks, polymers and tires. Ulthera (Pending:ULTH) produces ultrasound energy systems that lift the eyebrows and skin around the neck through a non-invasive procedure. Two relatively small financial firms also submitted initial filings, including a property insurer and a life insurance investment firm.

IPO initial filings (week of April 21, 2014)
Company (Ticker) Business Deal Size ($mm) LTM Sales ($mm)
Orion Engineered Carbons Holdings (OECH.RC) Produces carbon black for inks and rubber $300 $1,846
Heritage Insurance Holdings (HRTG.RC) Florida-based residential insurance $100 $125
Ulthera (ULTH) Ultrasound energy systems for face lifts $86 $82
GWG Holdings (NASDAQ:GWGH) Secondary buyer of life insurance policies $15 $33
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IPO market snapshot

So far this year, 94 IPOs have raised $18.6 billion and produced an average first day return of 16%. The Renaissance IPO ETF (symbol: IPO), a cap-weighted basket of newly public companies and indicator of post-IPO performance, has fallen 3% compared with +1% for the S&P 500. Over the last 30 days, the IPO ETF has fallen 6% compared with a flat S&P 500. Both are nearly unchanged from last week as IPO valuations remain under pressure. The active IPO pipeline includes 119 companies looking to raise a total of $25.3 billion.