The IPO Buzz: Recommended Reading

You probably wouldn’t buy a car or make any other major purchase without doing some homework. The same rule applies to buying stock in an IPO. Reading the prospectus isn’t just fundamental. It could prevent heartburn or a hole in your bank account.

Just three deals are on tap this week, and only two are IPOs. The third deal is a public offering by a European biotech company, whose stock already trades on the Euronext Paris. That fact is right there in the prospectus – the F-1, in this case, since this is a foreign company planning to list stock on the NASDAQ.

Karat Packaging, a maker of environmentally friendly food packaging, and BellRing Brands, a maker of protein bars, plan to go public this week. Karat’s S-1 and S-1/A filings show the company is profitable. (We’ll have more on that in a moment.) BellRing Brands is also profitable, its S-1 and S-1/A filings show. But be sure to check out the FWP – the Free Writing Prospectus – that BellRing Brands filed last Thursday, Oct. 11, with the U.S. Securities and Exchange Commission. The FWP discloses the debt that the company expects to take on after completion of the IPO. (And yes, we’ll have more on that, too, in a moment.)

The SEC is closed Monday for the Columbus Day holiday. But the U.S. stock market will be open.

Bankers expect to raise $645 million from this week’s three deals, if each is priced at the mid-point of its range. Let’s take a look at the offerings, organized by pricing and trading dates.

Tuesday night pricing for Wednesday trading:

Karat Packaging (KRAT proposed), based in Chino, California, describes itself as “a rapidly growing manufacturer and distributor of environmentally friendly, single-use disposable products primarily used in restaurants and food-service settings.” These products include food packaging, containers, tableware, cups, lids, cutlery and straws – available in plastic, paper, biopolymer-based material and other compostable forms, the prospectus says.

The company earned net income of $2.4 million on revenue of $200.9 million for the last 12 months, according to the prospectus.

This is an IPO of 5 million shares at $7 to $9 each on NASDAQ.

Wednesday night pricing for Thursday trading:

BellRing Brands (BRBR proposed) is a PowerBar maker. It’s a spinoff of Post Holdings, Inc., the St. Louis-based food company best known for its U.S. cereal brands like Grape Nuts and Honey Bunches of Oats. BellRing Brands makes and sells protein bars, shakes and supplements.

The company earned net income of $122.8 million on revenue of $859.8 million for the last 12 months, according to the prospectus.

This is an IPO of 30 million shares at $16 to $19 each on the New York Stock Exchange.

The IPO’s proceeds will be used to retire debt.

BellRing Brands filed a Free Writing Prospectus (FWP) on Oct. 11, 2019, that disclosed the details of more than $700 million in debt the company is likely to undertake after the IPO is completed (see Pages 1-4). Here’s a snapshot from the FWP:

“The changes in the Updated Preliminary Prospectus primarily reflect updates related to the amount and terms of the debt facilities that BellRing Brands, LLC expects to enter into immediately after the completion of the formation transactions and the completion of this offering, consisting of a revolving credit facility and a term loan facility. If the board of managers at BellRing Brands, LLC determines to borrow under the debt facilities, we anticipate that BellRing Brands, LLC will borrow approximately $700.0 million under the term loan facility and approximately $73.0 million under the revolving credit facility (with remaining availability of $127.0 million) (based upon the midpoint of the estimated offering price range set forth on the cover page of this prospectus). We expect that the amount of the Post bridge loan, which will be repaid in full from the proceeds of the offering and the debt facilities, will be $1,225.0 million.”

That works out to dilution of $22.65 per share for investors in this IPO, assuming that the IPO is priced at $17.50 a share, the mid-point of its range, according to the FWP. (See page 5.)

Innate Pharma SA (IPHA proposed), a biotech company based in Marseille, France, is not an IPO. The prospectus says: “Our ordinary shares are listed on Euronext Paris under the symbol “IPH.” On October 3, 2019, the last reported sale price of our ordinary shares on Euronext Paris was 6.85 euros per ordinary share, equivalent to a price of $7.50 per ADS, assuming an exchange rate of 1.00 euro = $1.0951, the exchange rate on October 3, 2019.”

Innate Pharma says it is “a biotechnology company focused on discovering, developing and commercializing first-in-class therapeutic antibodies designed to harness the immune system for the treatment of oncology indications with significant unmet medical need.” The company pioneered the understanding of natural killer cell, or NK cell, biology, the prospectus says.

The company’s lead product candidate, monalizumab, is being developed in collaboration with AstraZeneca to treat squamous cell cancer of the head and neck, colorectal cancer and other solid tumors, according to the prospectus.

Innate Pharma earned net income of $1.3 million on revenue of $143.2 million for the last 12 months, according to the prospectus.

This is a public offering of 10.7 million American Depositary Shares (ADS) at $7.50 each on NASDAQ. The listing of the Innate Pharma deal on the IPO Calendar is a professional courtesy since it is a public offering – and not an IPO.

(For more information about these companies, check the corporate profiles on IPOScoop’s website.)

Week of Oct. 21st

Only one IPO is on the IPO Calendar so far for the week of Oct. 21st. But that could change when the SEC’s filing window opens again for business on Tuesday morning, Oct. 15th.

Stay tuned.

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 opinions.