The maker of the disappearing message app, Snap (NYSE:SNAP) appeared on headlines in every major financial journal with its $3 billion IPO filing. The biggest tech IPO since Alibaba has rapid growth and massive losses, and at a reported $25 billion valuation it will no doubt be the most-watched IPO in years. However, Snap's pop should have little impact on the overall market for tech IPOs: The unicorns are ready, regardless.
Four IPOs priced this past week, led by two large PE-backed deals with disappointing debuts. Blackstone's Invitation Homes raised $1.5 billion, more than any 2016 IPO, while KKR's Laureate Education raised about $500 million. High-yielding energy play Kimbell Royalty LP priced down but traded up 15%, so far the best first-day pop among 2017 IPOs. This week also saw the year's first postponements, as opioid biotech Braeburn Pharmaceuticals (Pending:BBRX) and Latin American power producer IC Power (Pending:ICP) pulled their offerings.
January confirmed our expectations of a much more active IPO market in 2017. Nine deals raised $4.1 billion, the most proceeds for January in three years. The average January IPO is up 6%, led by window/door maker JELD-WEN ((NYSE:JELD); +24%) and followed by another PE-backed capital goods company, specialty vehicle maker REV Group ((NYSE:REVG); +18%). Three biotechs priced, but largely continue to rely on insider support, while Braeburn Pharma (BBRX) postponed. Still no IPOs from the tech sector: AppDynamics (Pending:APPD) came close but was acquired by Cisco for a whopping $3.7 billion, and PointClickCare (NASDAQ:PCLK) raised $85 million privately and withdrew its IPO filing. Snap, Presidio and a number of soon-to-be-filed tech companies appear ready to price in the first quarter.
|4 IPOs Priced During the Week of January 30, 2017|
| Issuer |
|Deal Size |
|IPO Market |
|Price vs. |
|First day |
|Kimbell Royalty Partners (NYSEMKT:KRP)||$90||$294||-10%||+15%||+15%|
|Owns oil and gas mineral/royalty interests underlying 4.5 million acres across the US.|
|Invitation Homes (NYSE:INVH)||$1,540||$6,109||+3%||0%||+3%|
|Blackstone-backed REIT that owns a portfolio of single-family homes in the US.|
|Ramaco Resources (NASDAQ:METC)||$81||$535||0%||0%||0%|
|Recently-formed metallurgical coal provider with reserves in Appalachia.|
|Laureate Education (NASDAQ:LAUR)||$490||$3,104||-24%||-5%||-5%|
|World's largest for-profit higher education company.|
Invitation Homes priced slightly above the midpoint and raised $1.5 billion - more than double entire 1Q16's proceeds - but finished its first day flat, and posted a 3% gain by Friday. This would be an unimpressive result for most IPOs, but REITs have historically had muted initial returns.
Death by degrees: IPO investors signal "We don't need no education"
Laureate Education, one of the few remaining holdouts of the 2005-2007 buyout boom, raised $490 million by offering extra shares at $14, far below its midpoint of $18.50. Primary backer KKR supported the deal by investing $50 million. Laureate broke issue on its debut and finished down 5%. Despite consistent enrollment growth, investors may still be wary of the for-profit education space. Laureate also carried large and expensive debt with exposure to various foreign markets with their own currencies and legal and economic uncertainties.
Royal treatment: Kimbell Royalty LP pops 15%
Kimbell Royalty Partners LP priced down to raise $90 million, but traded up 15% on its first day. Owning mineral interests in the attractive Permian Basin, Kimbell offers a royalty stream based on the production levels of its E&P customers. It offered a 8.1% yield at the offer price, and its clean balance sheet should enable some future acquisitions.
Metallurgical coal maker is no IPO of steel
Ramaco Resources priced at the midpoint to raise $81 million, but finished its first day up just 0.4%. Backed by Yorktown Energy, the early-stage producer of steel-making met coal enjoyed a large run-up in coal prices. However, it faces an uncertain regulatory environment and highly volatile coal prices, with no meaningful track record.
Filings, updates and withdrawals
In addition to Snap's initial filing, alternative asset manager Hamilton Lane (NASDAQ:HLNE) filed to raise $200 million. PointClickCare and seed trait developer Bioceres (BIOX) withdrew. CBS Radio (Pending:CBSR) had been on file for an estimated $500 million IPO, but instead merged with publicly-traded Entercom. Updated filings rolled in from trucking company Schneider National (NYSE:SNDR) and non-prime lender Elevate Credit (NYSE:ELVT).
IPO Market Snapshot
The Renaissance IPO Indices are market cap weighted baskets of newly public companies. The Renaissance IPO Index is up 5.5% year-to-date, while the S&P 500 is up 2.6%. Renaissance Capital's IPO ETF (NYSE: IPO) tracks the index, and top ETF holdings include First Data (NYSE:FDC) and TransUnion (NYSE:TRU). The Renaissance International IPO Index is up 4.6% year-to-date, while the ACWX is up 4.7%. Renaissance Capital's International IPO ETF (NYSE: IPOS) tracks the index, and top ETF holdings include Aena and ABN Amro.