When it comes to IPOs this year, the activity has certainly been muted. Keep in mind that there have been a mere 59 pricings so far.
To put this into perspective, 170 IPOs hit the market in 2015 and a whopping 275 came public a year before.
Despite this, it looks like things are starting to improve. Hey, Twilio Inc (NYSE:TWLO) has logged a gain of 277% and Acacia Communications, Inc. (NASDAQ:ACIA) is up 422%!
Actually, the improvement in IPOs has been more than just a couple high-fliers. In August, the average return for new offerings was about 32%.
OK then, what are some of the deals that may not have gotten much attention but represent interesting opportunities for investors? Well, let’s take a look at four:
Dark Horse IPO Picks: Medpace Holdings Inc (MEDP)
For Dr. August Troendle, the journey to an IPO was a long one. He founded his company, Medpace Holdings Inc (NASDAQ:MEDP), back in 1992. But it was only in early August that he took the company public.
Yet with little outside capital and dealmaking, Troendle has been able to create one of the largest clinical contract research organizations (CRO), with about 2,300 employees across 35 countries.
The company’s platform is also quite diverse, handling complex therapeutic areas like cardiology, metabolic disease, oncology, endocrinology, central nervous system, anti-viral, anti-infective and even medical devices.
The result has been a smooth growth path. From 2012 to 2015, revenues increased at a compound annual rate of 21.7%. Oh, and during the past 15 years, the average adjusted EBITDA margins have been a juicy 34%.
Going forward, there is still much room to continue the growth ramp. After all, the global market is at about $23 billion.
More importantly, there are key factors that are driving increased demand for CRO services, including the innovation in the biotech/pharma industry, the need to replace drug pipelines, a favorable regulatory environment and the substantial amounts of available capital to fund biotech startups.
Dark Horse IPO Picks: Surgery Partners Inc (SGRY)
Through aggressive M&A, Surgery Partners Inc (NASDAQ:SGRY) has built a nationwide network of more than 150 surgical facilities and physician practices across 29 states. The focus is primarily on non-emergency procedures for specialties like otolaryngology (ENT), gastroenterology, general surgery, ophthalmology, orthopedics, cardiology and pain management. But there are also various ancillary services, which have boosted margins. Some include diagnostic imaging, physical therapy, wound care and pharmacy.
It’s true that an M&A roll-up can be tough to manage, especially when integrating highly skilled industries. But so far, SGRY has achieved solid results. Consider that the patient satisfaction rate is 92% and the partner retention is at about 96%.
And yes, the financials have also been strong. In the latest quarter, revenues jumped by 24.4% to $289.7 million and adjusted EBITDA increased by 19.6% to $46 million. About 15% of revenues come from ancillary services.
One key to the success of SGRY is the leveraging of big-data analytics. All in all, this has helped greatly improve medical outcomes — which is increasingly becoming important for governmental reimbursement.
But SGRY is also benefiting from some other key trends. For example, the pace of innovation — such as with lasers, arthroscopy, more effective anesthesia and even fiber optics — has allowed for less invasive surgical techniques, which often means minimal recovery times.
What’s more, the costs tend to be much lower. So it should be no surprise that Medicare has been embracing the overall trend, with about 3,400 procedures approved for surgery centers.
Dark Horse IPO Picks: SecureWorks Corp (SCWX)
Secureworks Corp (NASDAQ:SCWX) is one of the few tech companies that has come public this year. Unfortunately, the stock is sitting just a little lower than its $14 IPO price from late April.
But this could be a nice opportunity for investors. As the name implies, Secureworks is a top player in the cybersecurity industry. Yet it is far from a startup. Keep in mind that the company’s roots go back to 1999.
No doubt, this history has been to the advantage of SCWX, which has built a solid platform that serves over 4,300 customers. The company has also been able to keep up a nice growth rate. In the latest quarter, revenues increased by 30% to $103.7 million.
At the heart of the SCWX technology is a sophisticated data analytics engine, which is called the Counter Threat Platform. It provides for real-time monitoring of client apps and data. In fact, there are key integrations with cloud platforms like Amazon.com, Inc.’s (NASDAQ:AMZN). The main goal for SCWX: to identify threats before they enter a system.
But the end-game could be an M&A exit. Let’s face it, the tech world has had a swirl of dealmaking — and a key category has been security.
More importantly, there are various large operators, like Cisco Systems, Inc. (NASDAQ:CSCO), International Business Machines Corp. (NYSE:IBM) and Microsoft Corporation (NASDAQ:MSFT), that have been quite aggressive in buying up companies lately.
Dark Horse IPO Picks: Tactile System
The traditional treatment for vascular problems, such as lymphedema and chronic venous insufficiency, can be onerous for patients. Some of the treatments include draining, intensive physical therapy, compression with layered bandages and decongestive exercises.
Unfortunately, medical reimbursement often runs out. Although, for those who suffer from chronic problems, it can be tough to administer self-treatment.
So shouldn’t there be a better way? Well, Tactile Systems Technology Inc (NASDAQ:TCMD) thinks so. The company is a top developer of medical devices that allow for home treatments for vascular ailments. For example, the Flexitouch System applies a gentle application of pressure to stimulate the movement of lymphatic fluid (this is used one hour a day).
All in all, TCMD’s strategy has been paying off. Last year, revenues increased by 32% to $62.9 million and net income came to $1.4 million.
But cutting-edge medical technology is not the only critical part of the success of TCMD. The company has also been savvy in building its own direct sales channel, which has helped bolster margins and also allow for better feedback from customers. TCMD’s offerings are accredited by many private payers, Medicare, the VA and certain Medicaid programs.
But so far, the company is still in the early phases of the opportunity. Based on its own research, the addressable market in the US for lymphedema and chronic venous insufficiency is approximately $4.7 billion.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
