With one quarter left until year’s end, it looked until only recently that 2015 would not be a great vintage year for IPOs. The Oil and Gas industry disappeared from the listings, busily figuring out what to do with a barrel hovering around $45.
The number of IPOs from the tech industry, usually a big provider of deals, has fallen to a 7-year low, so far representing 11% of the total amount in the US. These tech companies are in no hurry to face the scrutiny of public markets when private money can almost effortlessly be raised from venture capitalists and mutual funds with just a PowerPoint presentation. And the party doesn’t seem to be over just yet. Out of the 10 most valuable “unicorns”, 8 have raised additional private funding in 2015, with private rounds for tech companies bringing in 17 times more money than IPOs.
Companies in other sectors of the economy are also putting a hold on their IPO plans as they assess investor appetite in light of turmoil in the China markets. They are also waiting to gauge the effect of the recent decision from the Federal Reserve to take more time before raising interest rates.
Obviously, companies are more likely to list their shares when markets are stable and strong in order to maximize proceeds. Volatility and sharp swings in share prices disrupt IPO planning, while causing potential investors to exercise some caution. But with a fast changing IPO market, many things can still happen from now until the end of the year.
Biotech/Medtech IPOs experienced a robust first half of the year (64 IPOs so far), but were the first to face the music after the summer break, which coincided with the biggest market sell off since 2008.
When IPO operations resumed in mid-September, three biotech IPOs were offered to investors. We decided to make our first move into this sector of early-stage and unprofitable health care companies. Two of them had priced above their initial range. The first was Regenxbio (RGNX) on September 17th, and this gene therapy company provided us with an impressive +36.36% return. The second, Penumbra (PEN), a medical devices manufacturer, netted us a +28.33% profit the following day. That same day, antibiotics developer Nabriva Therapeutics (NBRV)—in spite of bad ratings and a pricing below the initial range—brought us a nice +17.07% return.
More biotech companies wait in queue on our last quarter pipeline. We will keep a watch on them, bearing in mind biotech IPOs are usually small, barely reaching $100m in allocations while remaining to be risky bets.
What would really make a difference in the last quarter is the listing of companies backed by private equity firms. A lot of companies had been bought with hefty debt during the last M&A boom before the 2008 meltdown, and these assets have been sitting on the PE firms’ books for a long time. Market volatility or not, it seems that several of them don’t want to wait any longer to return cash to investors and shareholders.
KKR &Co is pushing the listing of First Data Corp, while Cerberus is behind the IPO plan of Albertson’s Companies. Others lined up for the last quarter are Neiman Marcus (Ares Management), Performance Food Group (Blackstone), Multipackaging Solutions (Carlyle), and Univision (Madison Dearborn, Providence Equity).
Together with non US companies like China International Capital in Hong Kong (KKR), WorldPay (Advent International and Bain Capital) in London and Scout24 (Blackstone) in Frankfurt , the PE backed companies could raise a total of $10 billion, enough to make the end of 2015 better than how it started.