U.S. IPO Weekly Recap: US Foods Delivers As 5 IPOs Raise $1.5 Billion

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Includes: COTV, GMS, MSBI, NH, NTNX, PBNC, RETA, TWLO, USFD
by: Renaissance Capital IPO Research

Five IPOs raised $1.5 billion as the year's biggest week concluded the year's biggest month of IPO activity - further evidence that the IPO market's rebound is underway. Three were IPOs of profitable LBO'd companies, bringing the 2016 total up to six. While the tech sector has remained largely absent, high-growth venture-backed software provider Twilio (NYSE:TWLO) became the year's first "unicorn" to file, while Nutanix (NASDAQ:NTNX) updated financials; both IPOs appear to be targeting a June offer date.

In the past week, the S&P 500 traded up 2.3% while the Renaissance IPO Index gained 2.7%. Further supporting potential IPO issuance, the VIX Volatility Index closed the week just above 13, its lowest point this year. The 31 deals year-to-date have raised $5.4 billion, down about 55% from last year on both deal count and proceeds. In May, 15 IPOs priced, a 25% decline from last year, but up from just 8 in April, and 8 in the entire 1Q16. The year's returns are weighted toward the aftermarket, as mediocre first-day pops (averaging +4%) have improved to an average total return of 19%.

US Foods delivers

US Foods (NYSE:USFD), the nation's second-largest food distributor, received a warm welcome from investors on its $1 billion IPO, pricing above the midpoint and returning 9%. Its valuation still represents a discount to food distributor peers Sysco (NYSE: SYY) and Performance Food Group (NYSE:PFGC), a 2015 IPO. The discount could reflect US Foods' failure to to re-accelerate growth after the merger with Sysco fell through in mid-2015, and its remaining debt.

The price for payment analytics: Medical claims auditor Cotiviti prices up and trades down

Cotiviti (NYSE:COTV) raised $238 million by pricing above the midpoint, but dropped 10% on its first day, the first IPO to do so since Amplify Snack Brands (NYSE:BETR) in August. With over $550 million in annual sales, Cotiviti is a dominant player in its industry, and it may have attracted initial excitement based on its robust organic growth, strong adjusted EBITDA margins and its discount to peers on EBITDA. However, companies offering "health tech" solutions must contend with uncertainty over their niche in the rapidly-evolving US healthcare landscape. Other concerns could have been customer concentration, leverage and the impact of its non-core retail segment.

Gypsum Management and Supply (NYSE:GMS) priced at the low end of the $21-$23 range and closed the week up 7%. It has benefited from the residential and commercial construction recovery since 2011, but recently has experienced slower organic growth and limited pricing power in its wallboard segment.

Midland States Bancorp (NASDAQ:MSBI), which had been scheduled for the prior week, raised $80 million (16% insider) and broke issue on its debut, despite cutting the proposed range. Based in Illinois, Midland owns nearly $3 billion in assets and has relied on an aggressive acquisition strategy to drive earnings growth.

Reata Pharmaceuticals (NASDAQ:RETA) priced at $11, well below its $14-$16 range, but the company increased its IPO shares to still raise about $60 million (50% from insiders, down from 75%). The price was right for IPO investors as the biotech ended the week up 27%, reaching a valuation of almost $300 million - what it originally targeted. Reata had received over $1 billion from AbbVie (NYSE: ABBV) before its lead candidate failed a pivotal Phase 3 trial in 2013, and it is now testing the drug candidate for various forms of pulmonary hypertension.

Formed by the CEOs of Landry's and Jefferies, Landcadia (NASDAQ:LCAHU) raised $250 million in the year's fifth blank check company, down from the original $300 million deal size. It ended the week flat.

Five IPOs Priced during the week of May 23rd, 2016
Issuer
Business
Deal Size
($mm)
Market Cap
at IPO ($mm)
Price vs.
midpoint
First day
return
Return
at 5/27
Reata Therapeutics $61 $237 -27% +19% +30%
Developing therapies for life-threatening forms of pulmonary hypertension.
US Foods $1,022 $5,033 +2% +9% +9%
Second-largest US foodservice distributor LBO'd by KKR and CD&R.
Gypsum Management and Supply $147 $855 -5% +4% +7%
Leading North American distributor of wallboard and ceiling systems.
Midland States Bancorp $80 $334 -15% -1% +2%
Midwestern bank with 81 locations and $2.9 billion in assets.
Cotiviti $238 $1,765 +6% -10% -6%
Provides analytics-driven payment accuracy solutions mainly to healthcare clients.

Pipeline update: Twilio ventures into IPO territory with year's first "unicorn" filing

Twilio, which powers voice and SMS functionality on mobile applications, filed for a $100 million IPO. Valued at $1.1 billion in July 2015, Twilio has had impressive sales growth and recently became cash flow (CFFO) positive, highlighting the new playbook for the pre-IPO tech company out of Silicon Valley. Fellow tech unicorn Nutanix also updated its financial results this week, demonstrating another quarter of high growth and positive CFFO. Backed by Polaris and Flagship Ventures, immunotherapy biotech Selecta Biosciences (SELB) filed to raise $75 million, while small-cap bank Paragon Commercial (OTCQX:PBNC) filed to raise $29 million in a Nasdaq uplisting.

Just one IPO, NantHealth (NASDAQ:NH), is on the calendar for the upcoming shortened holiday week.

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 3%. Renaissance Capital's IPO ETF (NYSE: IPO) tracks the index, and top ETF holdings include Alibaba (NYSE:BABA), Synchrony Financial (NYSE:SYF) and Citizens Financial Group (NYSE:CFG). The Renaissance International IPO Index is down 4% year-to-date, while ACWX is up 1%. Renaissance Capital's International IPO ETF (NYSE: IPOS) tracks the index, and top ETF holdings include NN Group and Aena S.A.