US IPO Recap: Energy sector powers the week's IPO market

Seven companies had initial public offerings last week, including four from the energy sector. The year's 13 energy-related IPOs have averaged a 22% return, compared to 17% for non-energy. Three more are on the calendar for this week, too. Along with the sector's positive trading, rising natural gas prices have improved income statements and made large capital-intensive projects worthwhile. Several companies continue to invest in horizontal wells while newly-built pipelines and ancillary products support the higher output. The week's IPOs priced an average of 1% below the proposed midpoint, the smallest discount since the week of March 24.

Abengoa Yield ( ABY ) was the week's top performer, gaining 28% on its Friday debut. The company owns renewable and conventional power and electric transmission assets contributed by the Spanish energy giant Abengoa. Peers NRG Yield ( NYLD ) and Pattern Energy Group ( PEGI ) have had strong performances since their 2013 IPOs, gaining 137% and 41% respectively. Memorial Resource Development ( MRD ) also did well last week, rising 17% on its Friday IPO. It is the fourth oil and gas exploration and production IPO this year backed by private equity firm Natural Gas Partners (after RSP Permian ( RSPP ), up 47% since its IPO; Rice Energy (RICE), +52%; and Parsley Energy (PE), +33%).

MobileIron (MOBL), which sells security software to protect enterprise data on mobile devices, traded up 22% on its first day but fell 7% on Friday. While enterprise software IPOs remain battered by poor aftermarket trading, Zendesk's (ZEN, up 86%) IPO in mid-May could have signaled renewed interest in the area. Zhaopin (ZPIN) provides Chinese white collar workers with an online job board, and ended its first day up 9% and gained 5% more on Friday. Zhaopin's 14% gain still puts it behind the year's average of 36% for Chinese IPOs. It is the ninth Chinese IPO of the year, compared to the eight in 2013.

Nordic American Offshore (NAO) and Aspen Aerogels (ASPN) both traded down, and are now the only energy-sector companies trading below their issue price. They have support functions in the energy industry, as Nordic provides platform supply vessels for oil rigs and Aspen manufactures high-performance thermal insulation for large energy facilities. Trinseo (TSE), which Bain Capital bought from Dow Chemical in a 2010 LBO for $1.6 billion, makes plastics and polymers used in ink, tires, appliances and various other products. The company gained 6% on its IPO.

IPO pricings (week of June 9, 2014)
Company (Ticker) Business Deal Size ($mm) IPO Price vs. Midpoint Return as of 6/13
Abengoa Yield ( ABY ) Spinoff: renewable and other power assets $721 12% 28%
Memorial Resource Development ( MRD ) Oil and gas E&P backed by NGP $813 12% 17%
Zhaopin (ZPIN) Chinese online job board $76 0% 14%
MobileIron (MOBL) Mobile enterprise security software $100 0% 14%
Trinseo (TSE) Bain-backed plastics manufacturer $190 6% 6%
Aspen Aerogels (ASPN) Performance insulation for energy facilities $83 -27% -2%
Nordic American Offshore (NAO) Offshore oil rig platform supply vessels $94 -6% -3%

The IPO market continues its ascent, as measured by recent gains in the Renaissance IPO ETF, which has now recovered to its March-end price. The IPO investment vehicle's 6% gain has outperformed the S&P's 2% over the last 30 days, though year-to-date the S&P remains ahead. Returns for 2014 IPOs indicate an IPO market with increasingly healthy first-day pops followed by positive trading. The year's average aftermarket return available to ordinary investors is 5% for IPOs priced year-to-date and 11% for IPOs in the past 90 days. The total return for IPOs in 2014 is now 17% and companies that have gone public in the last 90 days have gained 22%. IPO candidates have quickly responded to the open window by setting terms to price. 28 IPOs have been added to the calendar in the past two weeks, even more than during February's biotech blitz. This round has again been fueled by small drug makers with little or no revenue (9 of the 28).

The IPO Recovery
As of May 9 May 16 May 23 May 30 June 6 June 13
IPO ETF Price $20.56 $20.81 $21.21 $21.34 $21.84 $22.13
IPOs Priced in the Past 90 Days
Aftermarket Return -13% -10% -7% -3% 4% 11%
Total Return -3% 2% 5% 9% 16% 22%
% Trading Below Issue Price 58% 58% 45% 45% 36% 33%
IPOs Priced Year-to-Date
Aftermarket Return -9% -8% -6% -3% 1% 5%
Total Return 1% 3% 6% 9% 14% 17%
% Trading Below Issue Price 52% 52% 43% 41% 38% 35%
Source: IPO investment advisor Renaissance Capital

IPO market snapshot

IPO market snapshot

So far this year, 124 IPOs have raised $25.8 billion and produced an average first day return of 11%. The Renaissance IPO ETF (symbol: IPO), a cap-weighted basket of newly public companies and indicator of post-IPO performance, has gained 1% compared with 5% for the S&P 500. The active IPO pipeline includes 123 companies looking to raise a total of $48.8 billion.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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