U.S. IPO Recap: 16 IPOs In A Row Price Below Their Midpoint

by: Renaissance Capital IPO Research

Including last week's 3 IPOs, 16 companies in a row have now priced below the midpoint of the original range, the longest streak in at least 15 years. The 16 IPOs in the last three weeks have priced at a 21% average discount to the midpoint and experienced an average first-day return of 0%. Pricing pressure continues to hold back the IPO plans of tech companies; only two tech firms, both Chinese, have launched in the past four weeks. IPO investors are rightfully cautious, given that tech IPOs this year have averaged 28% gains on their first day of trading but -15% in the aftermarket. Typically one of the most active months for IPOs, May will be a litmus test for whether the market has recovered from last month's chilling effect on valuations, but the eight companies that launched IPOs last week serve as a positive sign.

Three more IPOs price below midpoint, including Ares; no gains

Ares Management, LP (NYSE:ARES), an alternative asset manager with about $74 million AUM (24% 5-year CAGR), priced below its range and traded down 2%. Investors may have been turned off by a perceived lack of transparency with management, a recurring point of contention with public private equity firms. Papa Murphy's (NASDAQ:FRSH), a large pizza chain known for its bake-at-home pizzas, was the only company to end the week trading above its offer price. The Thomas H. Lee-backed (2010 LBO) company priced at the low end of its range and traded up 10% during the day before settling just above the offer price. Its IPO bucked a trend for recent restaurant IPOs; the last three traded up an average of 96% on the first day and priced 31% above the midpoint. Papa Murphy’s IPO performance was likely held back by the chain’s slower growth, higher debt levels and the fierce competition among pizza chains. SCYNEXIS (NASDAQ:SCYX), which is developing treatments for fungal infections and first set terms in March, fell 10% last week. The biotech cut its proposed valuation twice before completing its IPO with substantial insider support. Approximately $24 million out of the $62 million raised was contributed by Sanofi and other existing investors.

IPO pricings (week of April 28, 2014)
Company (Ticker) Business Deal Size ($mm) IPO Price vs. Midpoint Return as of 5/2
Papa Murphy's (FRSH) "Take 'N' Bake" pizza chain $64 -8% 0%
Ares Management, LP (ARES) Alternative asset management firm $216 -14% -2%
SCYNEXIS (SCYX) Biotech: deadly fungal infections $62 -23% -10%

Eight IPOs set terms despite IPO pricing pressure

Last week's three largest deals to set terms offer energy transportation and infrastructure solutions, including two yield plays spun out of 2012 IPOs. PBF Logistics (NYSE:PBFX), which owns terminals, pipelines and storage facilities for oil and petroleum products, is expected to price this week. The deal will represent 43% of the LP's value (49% if underwriters exercise the overallotment). GasLog Partners (NYSE:GLOP) may be the first energy transporter to go public this year after one withdrew and another postponed. The LNG carrier's parent GasLog priced well below its range and then dropped on the day of its IPO in 2012 but has since traded up almost 120%. Dorian LPG (NYSE:LPG), which trades on the Norwegion OTC market, operates three Very Large Gas Carriers shipping fuels like butane and propane.

Several tech companies have notably refrained from setting terms after first filing confidentially and then choosing to file publicly. Rimini Street (NASDAQ:RMNI), Box (NYSE:BOX), TubeMogul (NASDAQ:TUBE), Arista Networks (NYSE:ANET) and NW18 HSN Holdings (NYSE:HS) have all been on file for more than the three weeks required between publicly filing and setting terms. Given that May is a popular time for IPOs, these companies are likely just waiting for investor demand to heat up. The only tech IPO to launch last week was online Chinese tour site Tuniu (NASDAQ:TOUR), which followed the only tech IPO to launch in the prior week, Chinese security spinoff Cheetah Mobile (NYSE:CMCM) (set to price this week). However, Zendesk (NYSE:ZEN) and TrueCar (NASDAQ:TRUE) both set terms this morning and plan to price next week.

IPO terms filings (week of April 28, 2014)
Company (Ticker) Business Deal Size ($mm) LTM Sales ($mm)
PBF Logistics (PBFX) PBF Energy spinoff operating logistics assets $275 $51
GasLog Partners (GLOP) GasLog spinoff operating LNG carriers $168 $64
Dorian LPG (LPG) Owns liquefied petroleum gas (LPG) carriers $135 $42
Tuniu (TOUR) China's largest online provider of packaged tours $80 $324
ServisFirst Bancshares (SFBS) Commercial banks in the southeast US $58 $122
ETRE REIT (ECAV) REIT owning an office building in Washington, D.C. $56 $7
GlobeImmune (GBIM) Biotech: pancreatic cancer and hepatitis B $35 $22
SD Company (SDPI) Restores drill bits for oil and gas mining $30 $12

Atento chooses a US IPO while three others renew IPO plans

Atento, a CRM outsourcing company spun out of the Spanish telecom giant Telefonica (NYSE:TEF) in December 2012 and sold to Bain Capital, filed for a $300 million IPO, intending to list on the NSYE. Atento still derives about 50% of revenue from Telefonica. Westlake Chemical Partners LP (WLKP) filed for a $272 million IPO. The spinoff of plastics maker Westlake Chemical (IPO'd in 2004) will own and operate its upstream ethylene production assets.

Last week The Michaels Companies (MIK) renewed interest in its IPO, which is expected to raise at least $500 million, by submitting updated financials. CardioDx (CDX) also revived IPO plans in an amendment that updated financials and changed underwriters, following the company's postponement in November 2013. Aspen Aerogels (ASPN), which provides enhanced insulation products used in large-scale energy facilities, refiled for an $86 million IPO after withdrawing in May of last year.

Two health care companies, one equipment maker focused on protein analysis and one biotech developing protein therapeutics, filed for $86 million IPOs. The pipeline also saw compliance software producer TrustWave withdraw its stagnant IPO and Ariosa Diagnostics remove terms; both companies are facing new lawsuits.

IPO initial filings (week of April 28, 2014)
Company (Ticker) Business Deal Size ($mm) LTM Sales ($mm)
Atento (ATET.RC) Bain-backed Spanish CRM provider $300 $2,341
Westlake Chemical Partners LP (WLKP) Ethylene producer spun out of Westlake Chemical $272 $1,203
Aspen Aerogels (ASPN) Aerogel insulation for energy facilities $86 $86
ProteinSimple (PRTN) Enhanced systems for protein analysis $86 $54
Ambrx (AMBX) Biotech: protein therapeutics for cancer and diabetes $86 $20

IPO market snapshot

So far this year, 97 IPOs have raised $18.9 billion and produced an average first day return of 13%. Year to date, the Renaissance IPO ETF (symbol: IPO), a cap-weighted basket of newly public companies and indicator of post-IPO performance, has fallen 2% compared with +2% for the S&P 500. Over the last 30 days, the IPO ETF has fallen 3% compared with the S&P down only 0.4% Until post-IPO performance turns upward, IPO investors will require large discounts from issuers on upcoming IPOs. There is a heavy pipeline of upcoming IPOs including 120 companies looking to raise a total of $26.0 billion.