The curtain comes down on the 2017 IPO market this week, with five deals on the calendar. Bankers expect to raise $297 million. Then it’s whoosh! Everybody is off for the holidays.
Two Chinese IPOs are looking to raise $170 million, an insurance company is expecting to raise $100 million, and two small-cap deals are aiming to raise a total of $27 million this week.
Decoding the 2017 Data
Before getting into this week’s last-of-the year traffic, let’s take a quick look at 2017 numbers. As of Friday, Dec. 15, 2017, bankers had priced 149 IPOs, compared with 94 IPOs for all of 2016, according to the U.S. Securities and Exchange Commission filings. These figures may differ from those cited by other IPO services, but ours include what Wall Street professionals call “firm commitment” offerings.
In a “firm commitment” IPO, the underwriter/underwriters buy the entire offering from the issuer, pay the issuer, and sell the shares to their customers. For this service, the underwriting team earns an underwriting fee.
Bankers and Bucks
The overall underwriting fee is divided into three parts. In a $10-per-share offering, for example:
- The first part is called a management fee. That fee could amount to 10 cents per share and that dime per share – times the number of shares in the IPO – goes to all managing underwriters collectively.
- The second part is called an underwriting fee and that fee goes to all underwriters, including the managing underwriters, minus the underwriting expenses. That fee could amount to 10 cents per share and that figure – times the number of shares in the IPO – goes to all underwriters collectively.
- The third part is called a selling commission and that goes to all underwriters and selling group members, who are the non-underwriters. The selling commission is based on the number of shares each member sells to its clients. That could amount to 50 cents per share. (Note: In the United States, a company must be a registered broker-dealer to participate in a public offering.
- On the cover of an IPO’s final prospectus, the overall underwriting fee is shown under “Underwriting Discounts and Commissions.” In a $10-per-share offering, it usually amounts to 7 percent of the amount raised – or $14 million, for example, in a $200 million IPO. The fee is not broken down into management, underwriting and selling figures.
Note: IPOScoop.com excludes the following “IPOs” from its head count: Bank conversions, “best effort” offerings, Regulation A+ offerings (which are usually “best effort” offerings), “blank checks” or special-purpose acquisition companies (SPACs), closed-end funds, companies trading on the pink sheets moving up to the NASDAQ, and those foreign-traded securities making their debuts in the U.S. capital markets. The latter are public offerings. Investors can buy the underlying shares on foreign exchanges before their U.S. pricing dates.
A passing comment on Regulation A+ offerings: This type of deal is made through an offering circular, not a prospectus, and it calls the “underwriters” selling agents, not underwriters. In the offering circular, the selling agents have no obligation other than making an attempt to make a “best effort” to sell a stated number of shares.
In summary, the Regulation A+ offering is made through an offering circular; it has no underwriter.
China, Insurance and Health Care
Now let’s get back to the present and the IPO market’s final week of 2017. The names on the calendar from China are iClick Interactive Asia Group Limited (ICLK – proposed) and LexinFintech Holdings Ltd. (LX – proposed). The insurance sector is represented by Advantage Insurance (AVI – proposed). The small-cap issues are Adial Pharmaceuticals (ADIL – proposed) and Hancock Jaffe Laboratories (HJLI – proposed); both are in the health-care arena.
iClick Interactive Asia Group Limited, based in Hong Kong, is a digital marketing company. It was the largest online marketing technology platform in China in 2016 in terms of gross billing, according to Frost & Sullivan. iClick Interactive provides search, display, mobile and video advertising solutions to reach online audiences in China through a broad range of industry verticals, including banking and finance, entertainment and media, and e-commerce.
LexinFintech Holdings, based in Shenzhen, China, is one of China’s leading online consumer finance platforms in terms of the outstanding principal balance of loans originated on the platform as of June 30, 2017, according to Oliver Wyman. The company focuses on serving the credit needs of China’s educated young adults. It offers personal installment loans, installment purchase loans, wealth management and other financial services.
Advantage Insurance, based in San Juan, Puerto Rico, underwrites specialty life insurance policies for high net worth individuals, business owners and family groups worldwide. In addition, it provides property and casualty (P&C) insurance underwriting services to small and medium-sized businesses.
Adial Pharmaceuticals, based in Charlottesville, Virginia, is a clinical-stage biopharmaceutical company developing genetically targeted treatments for alcohol-use disorder.
Hancock Jaffe Laboratories, based in Irvine, California, is a development-stage medical device company developing biologically based solutions that are designed to be life-enhancing for patients with cardiovascular disease, peripheral arterial and venous disease, and end-stage renal disease. One of its leading products in development is a pediatric bioprosthetic heart valve designed for children and teenagers, which could “grow” with the patient and reduce the number of procedures required before the patient is ready to receive an “adult” heart valve.
(For more information about this company and others in this column, please check the profiles found on IPOScoop.com’s website.)
We will not be publishing next week, when Christmas will fall on Monday and the U.S. stock market will be closed that day. But we will be back for the week of Jan. 1, 2018.
So whether you are rushing to get ready for Santa or savoring the memory of the Hanukkah lights: Happy Holidays to all! May joy fill your days and your nights!
Disclosure: Neither the author nor anyone else on the IPOScoop.com staff has a position in any stocks mentioned, nor do we trade or invest in IPOs. The author and IPOScoop.com staff do not issue advice, recommendations or opinion.