15 companies had initial public offerings and raised $6.4 billion this week, making it the most active week in the IPO market since 2007. Including deals that priced yesterday and began trading today, July saw 34 IPOs, a post-tech bubble record. Year-to-date, 181 companies have gone public, a 56% increase over this time last year.
The most successful IPOs included fast growers Mobileye (MBLY, up 48%) and HealthEquity (HQY, 21%), yield play Westlake Chemical Partners (WLKP, 22%) and biotech Avalanche Biotechnologies (AAVL, 48%).
The IPO market is not in "anything goes" mode despite heightened activity and certain standout performers. Of the 22 IPOs that could have priced, three biotechs were delayed until next week (EARS, ZSAN, TBRA), three deals were postponed indefinitely (SRVA, LNTH, MAPI) and another (NASDAQ:ATRA) is waiting for clinical trial results. 90% of last week's IPOs priced below the midpoint and weak investor demand continues to pressure valuations as almost half of this weeks deals priced down. Even with heavy price cuts, 67% of offerings this week trade at or below their IPO price, compared to 37% for companies that went public in the 2Q.
Poor performers included financial IPOs Synchrony (NYSE:SYF) and FCB Financial (NYSE:FCB) and a group of five biotechs, including three out of Israel. LBO'd IPOs also faced pressure, as Blackstone-backed Catalent (NYSE:CTLT) broke issue and two more postponed, including "bank from bankruptcy" IPO Sirva, even after it added large insider buying.
3 of the year's 10 largest IPOs
This week saw 3 of the year's 10 largest IPOs, including Synchrony Financial, the largest offering since Facebook (NASDAQ:FB) in May 2012. Synchrony, GE's private label credit card and consumer finance business, raised $2.9 billion to make it the 6th $1+ billion IPO of 2014. Synchrony traded down during the day but was propped up to the IPO price before close. The year's second and third largest IPOs - both financial firms (SC, ALLY) - trade below the IPO price.
Mobileye priced above its upwardly revised range and raised 78% more than originally planned at a 40% higher valuation. The Israeli developer of camera-based driver assistance technology raised $890 million. The auto tech company's high margins, accelerating growth (tripled in the 1Q14) and massive potential market drove high investor interest.
Blackstone's Catalent, which provides softgel and other drug delivery technology to pharmaceutical companies, priced at its midpoint to raise $871 million and fell 3% by Friday close. It is Blackstone's third portfolio company to IPO this year after La Quinta (LQ, up 11%) in April and Michaels (MIK, down 10%) in June.
Four IPOs paying dividends
The week saw four yield plays, a sector that has generally outperformed this year. Westlake Chemical Partners LP, which owns the ethylene production assets of parent Westlake Chemical (NYSE:WLK), priced above its range and traded up over 25%. Investors may have been more convinced of the MLP's future growth than the other two yield spinoffs, Transocean Partners LLC (NYSE:RIGP) and VTTI Energy Partners LP (NYSE:VTTI). Spark Energy (NASDAQ:SPKE), a microcap energy retailer, offered a high dividend but may have faced skepticism over customer acquisition.
2014 reaches 50 biotechs with 6 this week
Today's Loxo Oncology (NASDAQ:LOXO) marked the 50th biotech IPO of 2014; the sector now represents 28% of all IPOs this year. Of the six biotechs, one outperformed, two traded flat and three dropped sharply. Avalanche Biotechnologies was the third and best-performing eye-related biotech to IPO in the past two weeks. The early-stage company is developing a gene therapy platform for wet AMD. While no gene therapy has been approved in the US, Avalanche's well-known backers and lucrative market may have contributed to a 65% first-day pop. The stock fell 11% on Friday, however. Biotechs continue to struggle to hold on to first-day gains: the group has averaged a 17% pop on first day trading but -8% in the aftermarket.
Loxo Oncology, a biotech developing therapies for solid tumors, ended the week at its IPO price. Last week's cancer-related biotech, Immune Design (NASDAQ:IMDZ) has also returned 0%. Marinus Pharmaceuticals (NASDAQ:MRNS) traded flat as well. It was the month's second epilepsy biotech IPO after Sage Therapeutics (NASDAQ:SAGE).
The week's worst performance came from three Israel-based biotechs that began trading on Thursday, which have indications for cancer (VBLX), hard-to-heal wounds (NASDAQ:MCUR) and rare diseases (NASDAQ:ORPN).
|IPO pricings (week of July 28, 2014)|
|Company (Ticker)||Business||Deal Size ($mm)||IPO Price vs. Midpoint||Return as of 8/1|
|Mobileye||Camera-based driver assistance tech||$890||39%||48%|
|Avalanche Biotechnologies||Biotech: gene therapy for wet AMD||$102||21%||48%|
|Westlake Chemical Partners LP||Spinoff of ethylene production assets||$270||20%||22%|
|HealthEquity||Platform for managing HSAs||$127||27%||21%|
|Transocean Partners LLC||Transocean spinoff with 3 deepwater rigs||$385||10%||12%|
|Synchrony Financial||GE's consumer finance business||$2,875||-6%||0%|
|VTTI Energy Partners LP||Spinoff of energy terminaling assets||$368||5%||0%|
|Loxo Oncology||Biotech: targeted therapies for solid tumors||$68||0%||0%|
|Marinus Pharmaceuticals||Biotech: add-on therapy for epilepsy||$45||-38%||0%|
|Catalent||Provides softgel and other drug delivery tech||$871||0%||-3%|
|Spark Energy||Gas and electricity utility||$54||-10%||-5%|
|FCB Financial Holdings||Florida bank formed out of failed banks||$165||-14%||-5%|
|Vascular Biogenics||Biotech: therapies for cancer and inflammation||$65||-14%||-18%|
|Macrocure||Biotech: white blood cell injections for wounds||$54||-29%||-25%|
|Bio Blast Pharma||Biotech: platform for rare genetic diseases||$35||-8%||-37%|
IPO market snapshot
So far this year, 181 IPOs have raised $39.8 billion and produced an average first day return of 14%. The Renaissance IPO ETF (NYSEARCA:IPO), a float cap-weighted basket of newly public companies and indicator of post-IPO performance, has gained 1.0% compared with 4.2% for the S&P 500. Over the last 30 days, the IPO ETF has fallen 4.4% compared with -2.4% for the S&P 500, as prices adjust from peaks at the end of June. The active IPO pipeline includes 114 companies looking to raise a total of $44.3 billion.
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