U.S. IPO Recap: Group Of Energy-Related IPOs Comes Up Dry

by: Renaissance Capital IPO Research

The first batch of IPOs in the new year failed to excite, but the IPO calendar continued to build last week as six companies set terms. The four completed deals were all energy-related, and most struggled on valuation, with three breaking below their offer prices. The six newly scheduled deals featured one large offering, an $800 million IPO from natural gas E&P Rice Energy (NYSE:RICE), and four clinical trial financings for early-stage biotechs. After a two-week run with 20 new filings, only one company, another in-development biotech, entered the IPO pipeline last week.

Sharp pricing discounts and disappointing returns for four IPOs

Pegged as a billion-dollar offering, EP Energy’s (NYSE:EPE) IPO raised only $713 million after the E&P cut it shares offered by 12% and its offer price by 20%. The stock dropped 10% on Friday in the worst first-day performance for a $500+ million IPO since Shanda Games’ 14% drop in 2009. EP Energy, which was acquired by Apollo in 2012 for $7.2 billion, has a 24-year drilling inventory and a high production growth rate (70% CAGR since 2011), but high debt and low natural gas prices have hampered results.

RSP Permian (NYSE:RSPP) completed the week’s other E&P IPO, pricing one dollar below the midpoint. It was the only company not to break its offer price last week, but its weak, 3% first-day return nevertheless reflected uncertainty around its short track record and need for substantial further investment.

CHC Group (HELI), a commercial helicopter operator for the offshore oil and gas industry, priced 41% below the midpoint of its range in a $310 million deal. Acquired by First Reserve for $3.5 billion in 2008, CHC has been unprofitable for several years due to its high debt balance, which remained above $1.5 billion after the IPO.

Cypress Energy Partners LP (NYSE:CELP) had the week’s top performing IPO. After initially falling below its offer price, Cypress’ stock rose 7% on its first day of trading (still well below the 22% average in the fourth quarter of 2013) and ended the week up 12%. Cypress, which provides saltwater disposal and pipeline inspection services to the oil and natural gas industry, came public with a projected 2014 yield of 7.8%.

IPO pricings (week of January 13, 2014)
Company (Ticker) Business Deal Size ($mm) IPO Price vs. Midpoint Return as of 1/17
Cypress Energy Partners LP (CELP) Saltwater disposal and pipeline inspections $75 0% 12%
RSP Permian (RSPP) Oil and gas E&P $390 -3% 3%
CHC Group (HELI) Helicopter service for offshore drillers $310 -41% -2%
EP Energy (EPE) Oil and gas E&P $704 -20% -10%

Natural gas E&P Rice Energy launches $800 million IPO

Rice Energy, a natural gas E&P operating in the Appalachian Basin, set terms for an $800 million IPO. Rice expects to achieve rapid production growth, backed by what it believes to be a 20-30 year drilling inventory. The company believes it can achieve 100% IRRs on its wells at current natural gas prices.

Malibu Boats (NASDAQ:MBUU), the leading performance sport boat manufacturer in the US, set terms for a $100 million IPO. Although the market for performance sport boats has been slow to recover from the downturn, Malibu’s sales have grown at 15%+ as it has taken share (33% in 2013) and expanded into the entry-level segment.

The remaining new deals were all small offerings from biotechs. Ultragenyx Pharmaceutical (NASDAQ:RARE) is developing in-licensed treatments for metabolic genetic diseases. Auspex Pharmaceuticals (NASDAQ:ASPX) has a Phase III treatment for chorea, a symptom of Huntington’s disease characterized by abnormal, involuntary movements. Cara Therapeutics (NASDAQ:CARA) has completed three Phase II trials on a treatment for moderate-to-severe pain. Lastly, NephroGenex (NRX) is working on a late-stage treatment for kidney disease.

IPOs setting terms (week of January 13, 2014)
Company (Ticker) Business Deal Size ($mm) LTM Sales ($mm)
Rice Energy (RICE) Natural gas E&P $800 $72
Malibu Boats (MBUU) Sport boat manufacturing $100 $177
Ultragenyx Pharmaceutical (RARE) Metabolic genetic disease treatments $75 $0
Auspex Pharmaceuticals (ASPX) Orphan disease treatments $61 $0
Cara Therapeutics (CARA) Pain treatments $60 $11

Concert Pharmaceuticals files for $75 million IPO

Concert Pharmaceuticals (NASDAQ:CNCE) submitted the only initial IPO filing last week. It is developing small molecule drugs for the treatment of spasticity and diabetic kidney disease. Revenue from licenses and milestones was $24 million for the 12 months ended September 30, 2013.

New IPO filers (week of January 13, 2014)
Company (Ticker) Business Deal Size ($mm) LTM Sales ($mm)
Concert Pharmaceuticals (CNCE) Spasticity and kidney disease treatments $75 $24

IPO market snapshot

The Renaissance IPO ETF, which trades under the symbol IPO, tracks an index that is up 46% over the past year. The 5 IPOs in 2014 have raised $1.5 billion and produced an average return of 8%. There have been 58 IPOs in the past 90 days, with total proceeds of $16.5 billion and an average return of 48%. The active IPO Pipeline includes 105 companies looking to raise a total of $24.2 billion.