Apparently, the stock market didn't get the message that it needed to remain calm and preferably in rally-mode this week as the IPO market pumps out a deluge of deals. The timing of the headline risk stemming from the persistent trade disputes with China is not ideal as it pertains to IPO pricing -- including Mayville Engineering's (MEC) IPO.
Prior to this week's volatility, a majority of IPOs were pricing strongly. In fact, last week, five of the six IPOs priced either at the high end of expectations or above. Unfortunately, the tide has turned; none of today's six IPOs managed to price above the mid-point of their projected ranges.
Of course, the main concern is how this volatility will impact Uber's (UBER) much-anticipated IPO tomorrow. There are already some indications that investors are taking a more cautious approach. Yesterday morning, Bloomberg reported that there was enough demand for UBER to price at the high end of the expected range. However, later in the afternoon, WSJ said that UBER was now likely to price at the mid-point or below.
As for MEC, its 6.25 mln share deal priced at $17, below the $19-$21 range, set to generate gross proceeds of $106.25 mln. The lead underwriters on the deal were RW Baird, Citigroup, and Jefferies.
MEC is a U.S.-based value-added manufacturing company that provides a broad range of prototyping and tooling, production fabrication, coating, assembly, and aftermarket components. Its customers operate in diverse end markets, including heavy- and medium-duty commercial vehicles, construction, power-sports, agriculture, and military.
Its capabilities include metal fabrication, metal stamping, tube bending and forming, robotic part forming, robotic welding, resistance welding, five-axis tube, and fiber laser cutting and custom coatings, including high heat and chemical agent resistant coating.
The company maintains an established base of long-standing customers comprised of leading, blue-chip OEM manufacturers across the United States.
For example, its more than 40-year relationship with Deere (DE) began with a small order of simple stamped parts for a farm tractor in its agricultural segment that expanded over time and represented 2018 pro forma sales in excess of $90.0 mln across five market segments, representing over 60 model platforms.
MEC says that its leading market position, embedded customer relationships with leading OEMs, unique value proposition, and proven acquisition strategy have allowed it to achieve attractive financial performance and have positioned it for further growth. Additionally, its ongoing investments in flexible, re-deployable automation allows it to expand output while reducing cost and improving quality, productivity, and consistency for margin enhancement and market leading competitiveness.
In its IPO prospectus, MEC provided preliminary results for 1Q19. Net sales are expected to be between $141.5-145.2 mln, an increase of 64% at the midpoint of the range. The estimated increase is primarily due to its acquisition of DMP, as well as organic growth of its legacy business of approximately 7.3% as compared to the midpoint.
Net income is expected to be between $2.2-2.6 mln, a decrease of 40% at the midpoint of the range. The estimated decrease is primarily due to one-time costs associated with the DMP acquisition and this offering partially offset by organic growth in our legacy business.
Adjusted EBITDA is expected to be between $16.0-17.0 mln, an increase of 67% at the midpoint of the range.