6 Firms To Guide PE-Heavy IPOs Totaling $1.6B

Six firms are set to steer an equal number of initial public offerings that could raise $1.6 billion in the week ahead, led by a private equity-backed food distribution giant that could represent the largest IPO of 2016 as the year’s busiest month approaches its end.

The current slate comes on top of the 10 IPOs raising $929 million that have priced so far in May, representing the most monthly activity since November, when 13 IPOs raised $1.4 billion, according to Dealogic. If all six deals price as scheduled this week, this month's total will rise to 16, double the number of offerings in April and the most so far this year.

Capital markets experts say that many deals that stalled during slower months are starting to move again as markets show more stability and the traditionally busy month of June approaches. They also note that more sponsor-backed IPOs are proceeding, an encouraging sign because private equity sponsors tend to patiently time their stock sales with an eye toward a profitable exit, compared with companies that more urgently need to raise capital.

“It’s a sign of expectations that the market is going to firm up,” Ropes & Gray LLP partner Craig Marcus said.

US Foods Holdings Corp., guided by Jenner & Block LLP, is primed to be the week’s largest IPO and could be the year’s largest depending on how it prices and whether underwriters buy additional shares.

The food service distribution giant plans to sell 44.4 million shares at between $21 and $24 each, to raise $1 billion at the middle of that range. If the IPO prices at the top the range and underwriters exercise an option to buy 6.7 million additional shares, proceeds could surpass $1.2 billion, potentially topping MGM Resorts International Inc.’s $1.2 billion IPO, which ranks as the year’s largest to date.

Backed by buyout shops Clayton Dubilier & Rice LLC and KKR & Co., which are not selling shares in the offering, US Foods plans to use most of the proceeds to pare its $5 billion debt. US Foods, the country’s second-largest food distributor, is going public one year after scuttling a $3.5 billion merger with rival Sysco Corp. that drew objections from antitrust regulators.

Two more private equity-backed offerings are set to price the week of May 23, including a potential $225 million offering from health care auditor Cotiviti Holdings Inc., advised by Weil Gotshal & Manges LLP. Cotiviti, backed by private equity firm Advent International Corp., plans to issue 12.5 million shares priced between $17 and $19.

Atlanta-based Cotiviti, which uses analytics and other technology to ensure payment accuracy, plans to spend at least $200 million toward repaying debt and set aside other proceeds for working capital.

Building materials company GMS Inc., guided by Fried Frank Harris Shriver & Jacobson LLP, is eyeing an estimated $154 million offering, also to pay off debt. GMS, majority-owned by private equity firm AEA Investors LP, plans to issue 7 million shares priced between $21 and $23.

Midland States Bancorp Inc., represented by Barack Ferrazzano Kirschbaum & Nagelberg LLP, is planning a $100 million IPO that would sell 3.9 million shares at between $25 and $27 apiece. With 81 branches mostly in the Midwest, Midland States marks the second bank to go public this year.

Two biotechs are joining the fray as well, each with plans to raise $60 million if shares price at the middle of their proposed ranges. Reata Pharmaceuticals Inc., a developer of drugs treating pulmonary hypertension, advised by Vinson & Elkins LLP, plans to issue 4 million shares priced between $14 and $16 to fund its pipeline. Cooley LLP-advised Clearside Biomedical Inc., which is developing drugs to treat diseases causing blindness, is moving ahead with an offering on similar terms.

One industry that has yet to price an IPO this year is the energy industry, which was hammered by the decline of commodity prices in 2014. That could be changing, according to Kirkland Ellis LLP partner Matt Pacey, who said his firm has begun fielding calls from energy producers inquiring about IPOs.

At least two deals could price this summer if the current market continues to show life and oil prices hold up after rallying in recent months to nearly $50 a barrel, Pacey said, and perhaps more could price after Labor Day.

“People here are starting to interview banks, interview law firms and are laying the groundwork to move forward,” said Pacey, who is based in Houston. “Or they are re-engaging in old processes that had been put on the shelf.”

A wider mix of industries has completed IPOs in recent weeks following an abysmal start to 2016, when the only issuers going public were small biotechs. Four companies plus a special-purpose acquisition company priced IPOs during the week of May 16, led by blank check company CF Corp.’s $600 million offering on Thursday.

CF sold 60 million units at $10 apiece, marking the year’s largest-yet offering by a SPAC — a category that's not counted in IPO statistics. SPACs, or blank check companies, are shell entities formed to raise money to acquire a private company and take it public.

New York-based CF said it will explore opportunities in the financial services, technology and service sectors. The company is advised by Winston & Strawn LLP, and its underwriters are represented by Skadden Arps Slate Meagher & Flom LLP.                 

The prior week also saw a landmark $280.5 million IPO from Grupo Supervielle SA, represented by Cleary Gottlieb Steen & Hamilton LLP, marking the first bank IPO of 2016 as well as the first U.S. listing from an Argentine company in two years.

Buenos Aires-based Grupo issued an upsized offering of 23.6 million American depositary shares priced at $11, the bottom of its $11 to $13 range, plus a concurrent offering in Argentina of 9.6 million shares at $2.20 each. Grupo’s offering comes as Argentina, led by a reform-minded government that just passed its first international debt offering in 15 years, hopes to increase participation in global capital markets.

Three life sciences companies also debuted the week of May 16 with small IPOs.

Dutch biotech Merus BV priced an upsized $55M IPO at $10 per share, well below its prior proposed range of $14 to $16. However, Merus, guided by Latham & Watkins LLP, did upsize its share count to 5.5 million from an earlier estimate of 4.3 million.

PhaseRx, a biotech developing treatments for liver deficiencies, guided by Haynes and Boone LLP, raised $19 million by offering 3.7 million shares at $5 apiece, the low end of its range of $5 to $7. Medical device company Pulse BioSciences Inc., represented by Golenbock Eiseman Assor Bell & Peskoe LLP, raised $20 by selling 5 million shares at $4 each.

For the coming week, US Foods’ offering will be underwritten by Goldman Sachs & Co., Morgan Stanley and JPMorgan Chase & Co., represented by Simpson Thacher & Bartlett LLP.

J.P. Morgan Securities LLC and Goldman Sachs & Co., guided by Latham & Watkins LLP, are lead underwriters on Cotiviti’s IPO.

Barclays, Credit Suisse, RBC Capital Markets, Baird and Wells Fargo Securities, advised by Debevoise & Plimpton LLP, are underwriting GMS’ offering.

The underwriters for Midland States, led by Sandler O'Neill and Keefe Bruyette Woods, are represented by Vedder Price PC.

Citigroup, Cowen & Co. and Piper Jaffray, represented by Goodwin Procter LLP, are underwriting Reata’s IPO.

Cowen & Co. and Stifel, guided by Latham & Watkins, are underwriting Clearside’s IPO.

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