Record IPO Surge Set to Roll On in 2021

After a brief pause, new issue activity resumed in late May after the Federal Reserve announced it would take extraordinary measures to support the economy and the stock market recovered after a sharp decline. Several stocks that debuted at the time soared to set the stage for a race to the public markets that is expected to pick up again in the new year after a brief holiday break.

According to Dealogic, companies raised $ 167.2 billion through 454 offers on US stock exchanges this year through December 24, compared to the previous year’s record of $ 107.9 billion at the height of the dotcom boom in 1999. The pandemic of the U.S. coronavirus turned the typical rhythm of the IPO market upside down, with $ 67.3 billion raised in the fourth quarter. That’s about six times the total for the first three months of the year.

As a result of the struggle, stalwarts of the 21st century economy, including Airbnb Inc.,

By Dash Inc.

and Palantir Technologies Inc.

are now publicly traded, accessible to the average investor.

The IPO market was boosted by a surprising increase in specialty acquisition companies, or SPACs, empty vehicles that raise money through lists and then look for companies to merge with. They represent a bet that an as yet unknown company will generate high returns and characterize the risk appetite that fuels new problems and markets in a broader sense.

Almost half of all fundraising in the IPO market was for SPACs, and the total raised through SPACs this year is nearly six times the vehicles raised in 2019, the previous record year.

The IPO frenzy peaked in the second week of December, usually a quiet time for new listings as it approaches the end of the year, when Airbnb and DoorDash both more than doubled on their first day of trading. That gave the two companies, which have not yet made consistent profits, valuations reaching well into the tens of billions of dollars.

These gains raised eyebrows among some concerned that the IPO market is overheating and draw parallels to the period before the Internet bubble burst in the early 2000s. Robinhood Financial LLC. If history is a guide, they say, such investors tend to flee to the exit as soon as the markets change course.

Colin Stewart, Morgan Stanley‘s

Global Head of Technology Equity Capital Markets, said investors have “boundless interest” in certain stocks, especially stocks that have captured the imagination of retail investors. “The movements and valuations of certain stocks are not necessarily based on corporate fundamentals,” he said.

Such concerns were evident when two companies planning to debut in the wake of Airbnb and DoorDash – Roblox Corp. and point-of-sale lender Affirm Holdings Inc. – decided to postpone their quotations. Roblox officials, in particular, were concerned about leaving money on the table if the video game platform also had a big first-day pop, according to people familiar with the matter.

Not all newcomers are warmly welcomed by public investors. For example, the week after Airbnb and DoorDash debuted, the parent company of ecommerce site Wish closed below the IPO price on its first day of trading.

Few bankers predict that the current pace will slow down anytime soon. A slew of startups worth more than a billion dollars, such as Robinhood itself, bitcoin exchange Coinbase Global Inc. and grocery delivery service Instacart Inc. wait in the wings. Many more international companies, such as South Korean e-commerce company Coupang Corp., are also considering listing on US stock exchanges.

And the SPAC frenzy will likely continue. Well-known technology investor SoftBank Group Corp.

filed paperwork for a possible SPAC in late December. The Japanese conglomerate is considering plans to bring at least two more to market by 2021, according to people familiar with the plans.

The flurry of activity began in late May, when the largest offering since the start of the pandemic, the IPO of comparison site SelectQuote Inc.

Raised $ 570 million after prices above an initial range. Shares were up 35% on the first day of trading.

Several companies followed, bringing in more big profits for investors. Pious Inc.,

an online used car retailer that debuted in early June, and Lemonade Inc.,

an insurance start that followed about a month later, more than doubled on their first day of trading. The performance encouraged more companies to continue planning for new problems.

This year’s technology IPOs – the backbone of the new issuance market – posted the biggest gains on their first day of trading since 2000, averaging 34% compared to then 65%, according to Dealogic. (In total, IPOs are up about 18% on their first day of trading.) On average, 2020 IPOs are up about 48% from their original prices.

The extreme interest in some IPOs, while others languishing, has made it particularly difficult for insurers to find the right price for shares to debut.

Take Snowflake Inc.

It went public in September for a price of $ 120, or about three times as much as the data warehousing company intended when it began selling the stock to investors. The stock has still more than doubled on its first day of trading and was recently up more than 150% from the IPO price.

Companies continue to experiment with new ways to access public markets, Palantir and the smaller tech startup Asana Inc.

made their debut without raising any money. The so-called direct listings, which have only been used by four major companies, are expected to gain popularity in 2021 after the Securities and Exchange Commission said in December that it will allow issuers to raise capital when they use them to go public. to go.

Whatever the method, startups’ interest in going public is showing no signs of waning. John Chirico, co-head of North American banking, capital markets and advice at Citigroup Inc.,

said companies “are seeing the benefit and value of being public like never before.”

Write to Maureen Farrell at [email protected]