Three dividend-producing companies raised $639 million this past week, tying the prior week as the year's most active by deal count. Yet all three IPOs ended their first days down or flat, bringing the number of first-day flops up to 12 of 16 (75%). An active IPO market hinges on investors' comfort with taking on the risk of a new issue.
Las Vegas casino operator Red Rock Resorts (NYSE:RRR) raised $531 million in the second-largest IPO of 2016, while Chinese online broker Yintech Investment (NASDAQ:YIN) took in $101 million and water utility Global Water Resources raised just $7 million. The active IPO sectors are beginning to broaden beyond health care, with the year's first offerings from consumer and utilities companies. We expect the trend to continue into May and June. Next week, however, biotechs are back in the spotlight with four deals on the calendar.
The S&P 500 and the Renaissance IPO Index both declined by more than 1% this past week, while the VIX Volatility Index jumped back up above 15. The market's movements are not encouraging for new IPOs, particularly in light of recent weak first-day returns, but the IPO environment remains relatively open heading into May thanks to positive trading in March and April.
Betting on the flop: Las Vegas casino Red Rock busts on first day
Red Rock Resorts priced at the midpoint and fell 4% on its debut, making it the year's first non-biotech to finish its first day below issue. All $531 million of proceeds went to insiders, including management, who took the company private in 2007 and filed for bankruptcy in 2009. Since then, it has achieved superior margins, helped by a rebounding Las Vegas economy. Closest peer Boyd Gaming (NYSE:BYD) reached its 5-year high earlier this month, but the stock began a 3-day slide (-10%) on the same day as Red Rock's debut.
Yintech Investment Holdings, China's largest online broker for spot trading commodities, priced at the midpoint, broke issue, and finished the week up 3%. The company likely chose a US offering thanks to the lengthy listing process in China, and could have been sold mainly to Asian investors, as evidenced by underwriter PingAn Securities, and its quick roadshow (only two days in the US).
Global Water Resources (NASDAQ:GWRS) priced a minuscule $7 million at the high end and closed Friday up 2%. The Arizona-based company offers a monthly dividend (~3.8% annualized yield) and its IPO made it eligible to refinance its $107 million in debt. The first-day trading volume was low at just 22% of the already-small float. It is the first utility to IPO since July 2014.
|Three diverse IPOs have disappointing debuts during the week of 4/25|
|Company (Ticker)||Business||Deal size ($mm)||IPO price vs. midpoint||First Day Return||Return at 4/29|
|Yintech Investment||Chinese online broker||$101||0%||0%||+3%|
|Global Water||Arizona water utility||$7||9%||0%||+2%|
|Red Rock Resorts||Las Vegas area casinos||$531||0%||-4%||-4%|
One lone SPAC files
Landcadia (LCAHU), a blank check company formed by the CEOs of Landry's and Jefferies, filed to raise $300 million. It is the latest large SPAC to file, following CF Corporation (CFCOU; $600mm) and M III Acquisition (MIIIU; $175mm) last week.
A wave of biotechs celebrate Cinco de Mayo
Four biotechs, each with significant insider buying, are on the IPO calendar to raise nearly $185 million in the week ahead. The most notable is Intellia Therapeutics (NASDAQ:NTLA), a biotech using gene-editing CRISPR/Cas9 technology that is a close peer to high-flying February IPO Editas Medicine ((NASDAQ:EDIT); 106%).
IPO Market Snapshot
The Renaissance IPO Indices are market cap weighted baskets of newly public companies. The Renaissance IPO Index is down 4% year-to-date, while the S&P 500 is up 1%. Renaissance Capital's IPO ETF (NYSE: IPO) tracks the index, and top ETF holdings include Synchrony Financial (NYSE:SYF), Alibaba (NYSE:BABA) and Citizens Financial Group (NYSE:CFG). The Renaissance International IPO Index is down 2% year-to-date, compared to +2% for ACWX. Renaissance Capital's International IPO ETF(NYSE: IPOS) tracks the index, and top ETF holdings include NN Group and Aena S.A.