Trader Talk

Finally picking up steam: September IPOs to watch for

Brendan McDermid | Reuters

After many false starts, the IPO market finally is heating up. There are nine companies on the calendar this week, the busiest week of the year, and if next week's proposed calendar comes through, September will be the busiest month of the year as well.

It's about time. The markets were in full rally mode by late April, and hit new highs in early June, but IPO issuance still lagged.

This week we will see:

  1. Two founder-led high-growth software companies: The Trade Desk, a tech platform for ad buyers, and Apptio, a cloud-based platform that helps CIOs analyze and manage their technology investments
  2. Two large consumer brands: low-cost cosmetics supplier e.l.f. Beauty and quick-lube chain Valvoline, which will be the fourth largest IPO of the year
  3. Two biotechs
  4. A bank, Capstar, the third bank IPO in the last month.

Though IPO issuance has been pathetic, those that have gone public are having a great year. Seventy-eight percent are trading above their IPO price. The average IPO is up 36 percent thanks to a few outsized gains from techs. The average first-day pop is roughly 9 percent. The Renaissance Capital IPO ETF, a basket of the most recent 60 IPOs, has been notably outperforming, up 8 percent this quarter vs. 2 percent for the S&P 500.

Tech IPOs in particular have had a great year:

Acacia Communications: up 396 percent

Twilio: up 281 percent

Talend: up 41 percent

Everbridge: up 37 percent

LINE: up 30 percent

And there is a little urgency: the presidential election. Renaissance Capital has noted that in prior election cycles, IPO activity did slow down immediately before and after the elections.

Of course, it's still not clear how the public will greet all this supply. In the following week, a genuine tech unicorn, Nutanix, is seeking to go public at a price of $11-$13, which at the midpoint would value the company at roughly $1.63 billion. Sounds good, but it's below the $2 billion that the company was valued at two years ago during its Series E funding. Since their revenues have grown substantially since then, their valuation is clearly lower. They tried,unsuccessfully, to go public back in December. They are best-known for a computer storage technology that makes it easier to run corporate servers.

Might this flurry of activity encourage some of those tech unicorns to come out of hiding? Maybe. Twilio, the only other unicorn that went public this year, has done well, but it priced at a discount. And now Nutanix is also pricing at a level designed to get the deal done.

Even with the flurry of activity, 2016 will likely be the weakest market for IPOs in many years. If the calendar for the next week comes through, there will be 77 IPOs for the first three quarters of 2016 — less than half the numbers for comparable periods in the last several years:

IPOs (through Q3)

2016: 77

2015: 170

2014: 275

2013: 222

2012: 128

2011: 125

2010: 154

Source: Renaissance Capital

Pretty pathetic, no? Still, it's good just to see things moving.