Global IPO market eyes record first quarter, even as SPACs falter

The global IPO market is on its way to its biggest ever first quarter, even as skepticism grows over the US-led blank check boom that sparked the frenzy.

A record $ 162.4 billion has been raised by more than 600 issuers in 2021, the highest ever at this point of the year, data collected by Bloomberg Show, with specialty acquisition companies accounting for half of the proceeds. In comparison, only $ 37 billion was raised in the first three months of 2020.

Unprecedented monetary and fiscal stimulus, ultra-low interest rates and – until recently – global markets at record levels contributed to both traditional and SPAC listings, with issuers rushing to sell while investor demand is high and valuations high. Stock prices have been underpinned by optimism that vaccines will tame the coronavirus pandemic, pushing the economy to recover.

Now the markets are shaky as investors worry about rising bond yields and so-called pandemic winners are losing their grip. An index tracking SPAC ratings is down 17% from its February high, with growing concerns about a bubble in that corner of the market, as the US market regulator has warned retail investors about celebrity-endorsed money scales.

“Volatility will weigh on the IPO market to the extent that investors become more selective about the offerings they participate in, while when US indices and technical stocks soar, investors tend to be less selective,” said James Palmer. the head of the equity capital markets for Europe, the Middle East and Africa at Bank of America Corp. However, “the strength of the IPO market is demonstrated by the fact that the quality offerings entering the market have not diminished in any way. “

South Korean e-commerce giant Coupang Inc., backed by SoftBank Group Corp., raised the price target for its US IPO, continued to price above that range, then rose 41% on day one. The company has been discontinued $ 4.6 billion this week in the largest US listing since then Uber Technologies Inc. in 2019. The dating app Bumble Inc. also made a huge flight last month fetching more than expected $ 2.15 billion.

But there have also been a few soggy starts in recent weeks, including by a Chinese household insecticide company Cheerwin Group Ltd., which Wednesday dropped 13% during its Hong Kong debut, and Oscar Health Inc., which fell 11% during its first session in New York on March 3, indicating that the big pops that were common just a few months ago might be a thing are of the past.

“Demand for IPOs remains high, although as yields rise, some of the high valuations may need to be reconsidered,” said Lewis Grant, a senior portfolio manager in the global business. Federated Hermes. Still, “truly disruptive companies with unique offerings, especially those with a sustainable advantage, are likely to find demand for their offerings regardless of the broader market.”

In Europe, where deals are pouring in after two years of subdued activity, companies are betting the scarcity of big offers will boost demand. This week alone saw the food delivery company Deliveroo, a lockdown winner, and Vodafone Group Plc’s European mobile phone mast unit Vantage Towers AG, an income game, planned for multi-billion dollar quotations in the region.

And bankers say the rotation of tech and other stay-at-home stocks, due to rising expectations of an economic recovery and the end of coronavirus-induced lockdowns, is not all bad news for the IPO market.

“While the IPO market has been primarily driven by technology companies, we are starting to see a broadening of the pipeline in terms of sectors and expect to see a wider breadth of sectors represented in the second half of the year,” said Richard Cormack. , head of equity capital markets for Europe, the Middle East and Africa at Goldman Sachs Group Inc. “As companies in sectors hit by the pandemic begin to recover, investors will want to engage in that recovery.”

While companies may market themselves as lockdown winners or recovery prospects, blank check companies may prove to be a trickier sell, with the U.S. Securities and Exchange Commission saying this is true on Wednesday. “Scrutinize” for notes and other structural issues.

Read: SEC Warns Investors against Buying Celebrity Endorsed SPACs

Blank check companies have nothing to do but raise money from a listing and use that to acquire a private company within two years. And everyone who’s anyone has one, from sports figures to former US House Speaker Paul Ryan, one crowd of Asian tycoons and big names European bankers.

“With changes at the SEC, SPACs in the US may become more regulated,” said Jason Manketo, global co-head of the equity practice at the law firm Linklaters LLP.

But bankers are optimistic that the SPAC craze will be exported overseas, although only a handful of blank check companies in Europe and Asia have been listed on a stock exchange so far.