The IPO Buzz: Diapers, Money and Drugs

All eyes were on the NASDAQ on Wednesday morning when The Honest Company, Inc. (HNST) – founded by actress  Jessica Alba – started trading. The Honest Co., known for its environmentally friendly diapers, priced its IPO on Tuesday night, May 4th, at $16 – slightly above the mid-point of its $14-to-$17 range – on 25.8 million shares to raise $413 million. The stock opened at $21.22, up 32.63 percent from its IPO price. The deal was the only household name among 10 IPOs on this week’s calendar. Bankers expect to raise about $1.43 billion.

Morgan Stanley, J.P. Morgan, Jefferies, BofA Securities, Citigroup, William Blair and Guggenheim Securities were the joint book-runners of the Honest Co.’s IPO.

ESG investors like The Honest Co. – its story and its products.  Some IPO experts said the IPO’s story played well on the Street. Portfolio managers of environmental, social and corporate governance (ESG) funds want to invest in companies founded or run by women.

“I loved her in Sin City, which was in black and white, like a film noir,” an IPO pro says of Alba.

At the $16 IPO price, The Honest Co. had a valuation of about $1.45 billion.

The Honest Co.’s shares closed their first day of trading (Wednesday, May 5, 2021) at $23.00, up 43.75 percent from their IPO price.

The IPO’s launch in late April, around the time of Earth Day on April 22nd, was a stroke of marketing genius, some say.  But the road to the IPO was not entirely smooth, as Forbes reported. Skeptics raised concerns about pricing and valuation in addition to asking what makes The Honest Co.’s diapers superior to Pampers, the king of the disposable diaper brands. (The Honest Co.’s diapers feature fashionable prints, which are popular with some millennial parents and their nannies, while others prefer Pampers on the grounds of function and cost.)

Today’s front-page news points to a grim fact for any company in the diaper business. The U.S. birthrate fell for the sixth straight year in 2020, according to The New York Times and The Wall Street Journal.

The Honest Co. intends to expand its international business, especially in Asia, the prospectus says.

California Banking

Five Star Bancorp (FSBC) also made its debut today on the NASDAQ. The Sacramento, California-based bank holding company priced its IPO of just 5.3 million shares at $20 – the top of its $18-to-$20 range – to raise $105.4 million on Tuesday night, May 4th. Five Star Bancorp’s stock opened Wednesday at $23.25, up 16.25 percent from its IPO price. On Wednesday, Five Star Bancorp’s stock closed at $24.25, up 21.25 percent on its first day of trading.

Keefe, Bruyette & Woods was the sole book-runner.

Commercial real estate and business loans are the forte of Five Star Bancorp’s flagship, Five Star Bank.

Vaccines and Vision Care

Wednesday night’s IPO pricing roster included a small-cap deal by Bowman Consulting Group Ltd. (BWMN proposed), an engineering consulting services firm that is likely to benefit from the passage of the infrastructure bill, and an uplift offering by French vaccine maker Valneva SE (VALN proposed).

Looking ahead to Thursday night pricing for Friday trading: Two healthcare IPOs – Talaris Therapeutics (TALS proposed) and Gyroscope Therapeutics Holdings plc (VISN proposed) – were launched Monday morning (May 3, 2021) with solid demand from biotech investors. Talaris specializes in stem cell transplant R&D. Gyroscope is working on a gene therapy treatment for macular degeneration.

Waterdrop Inc. (WDH proposed), a tech platform dedicated to insurance and healthcare services in China, is attracting a fair amount of interest ahead of its IPO pricing on Thursday and its debut on Friday. A micro-cap deal, Anebulo Pharmaceuticals, which is developing a cannabinoid overdose treatment, is also scheduled for pricing Thursday night to trade Friday.

Second Week of May

The second week of May is best known for Mother’s Day, which is Sunday, May 9th. But IPO investors are already anticipating two deals on the IPO Calendar for next week: Global-E Online Ltd. (GLBE proposed) and Similarweb (SMWB proposed)Zenvia (ZENV proposed), a Brazilian customer service platform; Enact Holdings, formerly Genworth Mortgage, and NV are also on tap next week. The IPO Calendar is likely to grow as more companies flock to the filing window this week at the U.S. Securities and Exchange Commission.

Stay tuned.

(Editor’s Note: This column was updated with the closing prices on Wednesday for shares of The Honest Co. and Five Star Bancorp on their first day of trading.)

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(Never trade on proposed symbols. You might wind up owning something on the OTC Bulletin Board.)

Disclosure: Nobody on the staff has a position in any stocks mentioned above, nor do they trade or invest in IPOs. The staff does not issue advice, recommendations or opinions.

Disclaimer: A SCOOP Rating (Wall Street Consensus of Opening-day Premiums), is a general consensus taken, at press time, from Wall Street and investment professionals concerning how well an IPO might perform when it starts trading. The SCOOP Rating does not reflect the opinions of anyone associated with The SCOOP ratings should not be taken as investment advice. The rating merely reflects the opinion of the professionals at the time of publication and is subject to last-minute changes due to market conditions, changes in a specific offering and other factors, such as changes in the proposed offering terms and the shifting of investor interest in the IPO. The information offered is taken from sources we believe to be reliable, but we cannot guarantee the accuracy.