Hit By Sandy, Then The Market, 3 IPOs Fail To Price

Includes: ALDW, RKUS, VIPS, YY
by: Renaissance Capital IPO Research

After seven consecutive weeks of IPO pricing activity, the second longest streak since 2010, three companies delayed or postponed their offerings last week. Each company on the calendar was either early in development or newly formed, and all three deals had already been pushed back following Hurricane Sandy. The IPO calendar continued to build though, as four companies, including two high-growth technology companies, set terms. The week also saw four companies, led by the US arm of financial services giant ING Group, make their first IPO filings, adding an estimated $1.5 billion to the IPO pipeline.

Previously delayed deals postponed

Auction marketplace rollup Taylor & Martin Group (TMG), diagnostics company Singulex (SGLX) and biotech Radius Health (NASDAQ:RDUS) had planned to price their deals on Wednesday. However, the uncertainty around these developing companies and a weak day in the markets (the S&P fell 2.4%) conspired to keep investors away. Taylor & Martin intended to complete its offering only if it could fund all of its planned acquisitions and had limited scope to cut its offer price. Singulex, despite strong revenue growth in its cardiovascular testing segment, was investing heavily in a second-generation product that was not expected to launch until 2016.

Both Taylor & Martin and Singulex postponed their offerings. Radius Health, which is developing treatments for osteoporosis but generates no revenue, now plans to price this week.

Four companies added to the IPO calendar

Hoping to be the first Chinese company to complete a US IPO since Vipshop Holdings (NYSE:VIPS) priced on March 22, 2012), social platform YY Inc. (NASDAQ:YY) set terms for a $90 million IPO. The company provides a popular online group communication service, sells online game tokens and recently entered into music. Revenue is up 168% YTD to $88 million, while adjusted net income jumped nearly 7x to $21 million. Venture backers include Morningside, Steamboat Ventures, Granite Global and Tiger Global. Morgan Stanley, Deutsche Bank and Citi are acting as joint bookrunners.

Wi-Fi equipment provider Ruckus Wireless (NYSE:RKUS) set terms for a $98 million US IPO. Ruckus's systems provide up to 4x the range of basic Wi-Fi and are sold to more than 17,000 enterprise and cable and mobile service providers. Revenue increased 85% to $56 million in the third quarter, while operating income more than doubled to $6 million. Sequoia Capital is its primary venture backer. Goldman Sachs and Morgan Stanley are the joint bookrunners.

Alon USA Partners (NYSE:ALDW) set terms for a $200 million IPO and became the eighth midstream energy LP added to the calendar since September. Formed in August 2012 by parent company Alon USA Energy (NYSE: ALJ), it operates a crude oil refinery in Texas and markets its products in the Southwest.

Ruckus is expected to price this week, while YY and Alon USA Partners are scheduled for the week of 11/19. Agricultural REIT Gladstone Land (NASDAQ:LAND), which set terms for a $50 million IPO two weeks ago without timing, is now expected to launch its deal in December.

ING files for potential $1 billion IPO

ING US (ING.RC), a subsidiary of ING Group, filed for its widely anticipated US IPO on Friday. The retirement, investment and insurance company serves 13 million customers in the US and generated revenue of $9.3 billion in the last twelve months. We estimate that the deal size, listed as $100 million in the filing, could exceed $1 billion. Morgan Stanley (NYSE:MS) and Goldman Sachs (NYSE:GS) are acting as joint bookrunners.

Three other companies made initial filings: Translation software provider Babylon (BBYL), which already trades in Israel under the same ticker, filed for $115 million US IPO. The company is in the middle of a two-year agreement with Google, which has accounted for 84% of the $121 million of year-to-date revenue. The company has been profitable for each of the last three fiscal years and generated a year-to-date EBITDA margin of 18%. Citi and Jefferies are the joint bookrunners on the deal.

Midstream energy LP Western Gas Equity Partners (NYSE:WGP) filed for a $362 million IPO. The company's general partner is Western Gas Partners, LP (NYSE: WES), which itself is owned by Anadarko Petroleum (NYSE: APC). Barclays and Citi are the joint bookrunners. Finally, biotech Enanta Pharmaceuticals (NASDAQ:ENTA), which is developing treatments for hepatitis C, filed for a $69 million IPO. J.P. Morgan and Credit Suisse are the joint bookrunners.

The US IPO pipeline now holds 129 companies looking to raise $39.2 billion. In the past 90 days, 51 companies have updated their IPO filings.

US IPO performance update

The weak market last week served to extend a slide in recent IPO performance. IPOs from the past 90 days have an average total return of 13% (vs. 20% three weeks ago) and an average aftermarket return (excluding first-day returns) of 0.2% (vs. 8%). Whereas 84% of recent IPOs were trading above their offer prices three weeks ago, just 68% are today.

Year-to-date performance has also fallen off. The average total return for US IPOs this year is 13% (vs. 20% three weeks ago) and the average aftermarket return is -0.4% (vs. 5%).

This year, 121 US IPOs have raised $41 billion, compared with 106 having raised $31 billion at this point last year.

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