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US IPO Recap: Two deals set terms, ten new filers added to the pipeline

By: Renaissance Capital
Posted: 9/3/2013 9:14:00 AM
Referenced Stocks: AMC;EVOK;HRG;NDLS;VLRS

There was no pricing activity in the US IPO market last week, as the typical end of August slow down continued, but two deals set terms, including Mexican airline Volaris ( VLRS ) and biotech Evoke Pharma ( EVOK ), and filing activity indicates that deals are lining up for fall debuts. 54 companies have updated their filings in the last 30 days, and the IPO pipeline now consists of 110 deals, a six-week high. Ten companies submitted initial filings last week in only the third week of 2013 to have ten or more initial filers, and the August 2013 initial filing total reached 29.

Volaris launches $375 million deal
Volaris Aviation, a low cost Mexican airline that provides service to 30 cities in Mexico and 10 cities in the US, announced terms for a $375 million deal on Friday of last week. The company is dual listing on the NYSE (75% of shares offered) and the Mexican Stock Exchange (25%). At the midpoint of the proposed range, Volaris would command a market value of $1.3 billion. Volaris targets cost-conscious passengers and provides service to 30 cities in Mexico and 10 cities in the United states. It is the lowest cost carrier based on cost per available seat mile among publicly traded airlines in Latin America.

Evoke Pharma, a biotech focused on the development of drugs to treat gastrointestinal disorders and diseases, also set terms last week. The company is planning to initiate a Phase 3 trial in the first half of 2014 for its only drug candidate, a nasal spray that will treat diabetic gastroparesis in women, and is hoping to continue the 2013 wave of biotech IPO successes.

IPOs setting terms (week of August 26, 2013)
Company (Ticker) Business Deal Size ($mm) LTM Sales ($mm)
Volaris Aviation ( VLRS ) Low-cost Mexican airline $375 $1,025
Evoke Pharma ( EVOK ) Gastrointestinal biotech $60 $2

AMC IPO resurfaces, three tech deals among pipeline additions
AMC Entertainment ( AMC ), the nation's second largest theater chain which owns or operates 343 movie theaters in the US and is looking to raise up to $400 million, was the largest filer of the week. The company had filed to go public twice before in 2007 and 2010 but eventually withdrew its registration statements. AMC's second withdrawal came after the company was acquired by the Wanda Group, one of the largest, privately-held conglomerates in China, for $2.8 billion in August 2012.

Potbelly, a fast-growing sandwich shop chain, was another notable company to submit its initial filing last week. The company operates 286 shops in 18 states and is hoping to follow in the footsteps of fast-casual restaurant chain Noodles & Company's ( NDLS ) successful June 27, 2013 IPO. Noodles gained 104% in its first day of trading and is up 154% from its IPO price as of Friday's close.

Both Fidelity & Guaranty Life (FID.RC) and Premier (PINC) filed with $100 million placeholder deal sizes; we expect both deals will raise several hundred million. Fidelity & Guaranty Life, a life insurance provider targeting middle-income Americans, was founded in 1959 and acquired by Harbinger Group ( HRG ) for $350 million in April of 2011. The Harbinger Group is led by investor Philip Falcone, who was charged with securities fraud in June of 2012 and recently reached an $18 million settlement with the SEC. Healthcare alliance Premier serves 2,900 US hospitals and 400,000 physicians with supply chain services, data analytics and advisory services. The company reported $869 million in sales for the fiscal year ended June 30, 2013 and boasts 48% adjusted EBITDA margins.

Last week's initial filers also included three venture-backed tech deals from Violin Memory (VMEM), RingCentral (RNG) and Globant (GLOB). Violin Memory, which sells flash memory arrays to more than 250 enterprises in diverse end markets, has grown revenues at an 86% CAGR since 2011 and reported strong earnings growth in the first half of 2013, despite losing a substantial contract with Hewlett-Packard that accounted for 65% of its revenue in 2012.

RingCentral, which provides cloud-based phone systems to small businesses, is hoping to raise $100 million and differentiates itself from traditional business communications providers with its offering of flexible and cost-effective services that support distributed workforces, mobile employees and the proliferation of "bring-your-own" communications devices. Globant provides out-sourced, off-shore software development services, including e-commerce applications, for enterprises such as Google and LinkedIn and is a close competitor of Luxoft (LXFT), which went public in late June and has gained almost 40% since its IPO. The company will reserve 1% of the offering to be sold to the general public through a Facebook page.

LGI Homes (LGIH), an entry-level homebuilder hoping to be the sixth homebuilder IPO of 2013, submitted an initial filing to raise up to $125 million. While homebuilders garnered strong investor interest in the beginning of the year as the housing market was showing signs of recovery, they have traded off recently due to concerns over rising interest rates. Four of the five homebuilder IPOs of 2013 are now trading below their IPO prices. Since commencing operations in 2003, LGI Homes has constructed and sold over 5,000 homes and has reported profits every year despite the housing downturn from 2006 to 2008.

LDR Holding (LDRH.RC), which develops medical devices for use in spine surgery, submitted an initial filing to raise up to $69 million last week. LDR is the first medical device company to file for an IPO since Globus Medical (GMED) went public on August 2, 2012. Globus raised $100 million and has traded up almost 47% since its IPO.


New IPO filers (week of August 26, 2013)
Company (Ticker) Business Deal Size ($mm) LTM Sales ($mm)
AMC Entertainment ( AMC ) Movie theaters $400 $0
Violin Memory (VMEM) Flash memory $173 $95
LGI Homes (LGIH) Entry-level homebuilder $125 $107
Fidelity & Guaranty Life (FID.RC) Life insurance $100 $1,385
Premier (PINC) Healthcare alliance $100 $869
RingCentral (RNG) Cloud-based phone systems $100 $136
Globant (GLOB) Out-sourced software solutions $86 $144
Potbelly (PBPB) Sandwich shops $75 $290
LDR Holding (LDRH.RC) Spine surgery devices $69 $98
SuperCom (SPCB) Digital IDs $26 $9

IPO market snapshot
The 131 IPOs in 2013 have raised $28.5 billion and produced an average return of 26%. There have been 57 IPOs in the past 90 days, with total proceeds of $11.5 billion and an average return of 20%. The active IPO pipeline includes 110 companies looking to raise $31.1 billion.