Home, home below the range: all five deals this week priced below the range.
There were eleven companies on the IPO calendar this week, but only five were able to price, and each of those priced at least 19% below their proposed midpoints. Furthermore, the IPOs that were able to price after slashing their valuations had somewhat underwhelming performance, posting an average first-day pop of -2.2%. Total returns were better (10.2% average) thanks to Edge Therapeutics' strong aftermarket trading (+35.1%).
Of the seven health care companies that were expected to price, only four did. The three that didn't, Cerecor (Pending:CERC), SynCardia Systems (Pending:TAHT) and Strongbridge Biopharma (NASDAQ:SBBP), were likely victims of the fast-falling biotech market. The Nasdaq Biotech Index (NBI) is down 15% in the last three months and 62% of health care companies to go public in 2015 are now trading below their IPO price. There were also three microcap Chinese manufacturers, Sole Elite Group (Pending:SOLE), Fuling Global (Pending:FORK) and Boxlight (NASDAQ:BOXL), on the calendar that failed to get done.
A poor performance
Performance Food Group was the largest deal of the week and the fourth largest consumer IPO of 2015, despite pricing its $276 million IPO well below its range. The third-largest US foodservice distributor offered 14.5 million shares (12% insider) at $19 ($22-$25 range). Despite that it is faster growing than its peers, investors may have been concerned with its below average margins and high leverage (3.5x LTM EBITDA; B1/B rated debt).
Investors on Edge
Edge Therapeutics had the strongest returns this week, popping 18% in its first day and ending the week up 59%. However, Edge priced 27% below its range and raised $80 million at a market cap of $332 million, a 24% discount to the originally proposed $435 million valuation at the midpoint. Mirna Therapeutics also priced substantially below its range, coming public at $7, 50% below its proposed range of $13-$15. It ended the week trading at $7.04, a return of just 0.6%. The company had planned to raise $65 million at a proposed market cap of $240 million; it raised $44 million at a market cap of $142 million (41% discount).
Massive cuts for Surgery Partners
Surgery Partners, which owns or operates 99 surgical facilities in the US, had the second largest IPO this week, raising $271 million, which gave it a market cap of $914 million. It traded down 5% in its debut but recovered slightly to end the week down 3%. Investors may have pushed for an in-line valuation given its high, variable-rate debt, uncertainty around the integration of the Symbion acquisition and recent volatility in the health care space.
The last IPO of the week, NovoCure, cut its price range and removed insider selling on Thursday. On Friday, it priced 20% below the downwardly-revised range and below its last venture round ($23.33 per share), then traded down 17%. It raised $165 million at a market cap of $2.1 billion. This poor showing came just two weeks after Penumbra (NYSE:PEN), another medical products company, came public when it priced its upsized $120 million IPO above the range at a valuation of nearly $1 billion.
| 5 IPOs during the week of September 28, 2015 | |||||
| Company (Ticker) | Business | Deal size ($mm) | IPO price vs. midpoint | 1st-day pop | Return at 10/02 |
| Edge Therapeutics (NASDAQ:EDGE) | Biotech: Brain aneurysms | $80 | -27% | 18% | 59% |
| Performance Food Group (NYSE:PFGC) | Foodservice distributor | $276 | -19% | 1% | 12% |
| Mirna Therapeutics (NASDAQ:MIRN) | Biotech: microRNA cancer therapy | $44 | -50% | 0.7% | 0.6% |
| Surgery Partners (NASDAQ:SGRY) | Surgical facility operator | $271 | -22% | -5% | -3% |
| NovoCure (NASDAQ:NVCR) | Biotech: Brain cancer device | $165 | -20% | -17% | -17% |
IPO Market Snapshot
Strong IPO volume in the fourth quarter will in part hinge on improved returns for recent IPOs. The Renaissance IPO Index has traded down 10.2% year-to-date, compared to -5.2% for the S&P 500. Renaissance Capital's IPO ETF (NYSE: IPO) tracks the index, and top ETF holdings include Alibaba (NYSE:BABA), Hilton Worldwide (NYSE:HLT) and Twitter (NYSE:TWTR). The Renaissance International IPO Index has traded down 5.2% year-to-date, compared to -7.2% for the ACWX. Renaissance Capital's International IPO ETF (NYSE: IPOS) tracks the index, and top ETF holdings include Recruit Holdings and Cheil Industries.
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