Movers and SHAKERS
The Dollar Amount of IPOs in 2020 was Blistering. Will Deals Continue in 2021?
Despite the stellar year-over-year 2020 performance experienced by Wall Street, the bull icon was kept mainly under wraps. Instead, unprecedented use of the unicorn came to represent the spectacular deals surrounding private companies eyed by investors as they were brought public.
Investors put money into IPOs including those that fall into the unicorn category in totals that dwarfed all previous records. The explosion was not anticipated as 2020 began, and hopes were even more dim when lockdowns became certain. But a frenzy built as the value of tech companies grew during these lockdowns. IPO-mania is still very much alive; expectations and the current calendar of deals promise that this rampant pace will carry into 2021.
A unicorn is a term in the business world to indicate a privately held startup company valued at over $1 billion. The term was coined in 2013 by venture capitalist Aileen Lee, choosing the mythical animal to represent the statistical rarity of such successful ventures.
The previous record for deals closed in a year was $107.9 billion. This prior record was set more than two decades ago amidst the apex of the dot-com era in 1999. The 20-year old benchmark was blown away in 2020 by a total of 454 companies that raised $167.2 billion on U.S. exchanges (through Dec. 25).
The pandemic-related changes in market activity and flow of business caused the number and type of companies going public to follow an unusual pattern. IPO activity is typically busiest early in the year and quieter in the later months. In 2020, $67.3 billion was raised in the fourth quarter; this is roughly six times that which was raised during the first quarter.
When businesses were asked or forced to shut down on pandemic-related concerns back in March, seasoned IPO players were preparing for yet another disappointing year after a tepid 2019. As parts of global economies closed and eventually in the U.S., it seemed that it would be very difficult to successfully bring companies to market at a fair price. There was a brief pause following the stock market fall in March; then, the Federal Reserve signaled it would take extraordinary measures to keep the economy sound. The stock market, which was already on the rebound, continued its climb. Several new equity offerings began to soar; this caused others to accelerate any plans they had to bring their companies public. Since then, there has been what seems like a race to be the next successful IPO. The fundamental reasons for this enthusiasm, low rates, a changing economy, and strong markets. These conditions are all still firmly in place as we begin 2021.
Almost half of all money raised in the IPO market in 2020 was for Special Purpose Acquisition Companies (SPACs). The total amount raised through SPACs last year is close to six times the amount the vehicles had raised in 2019 (which was the previous record-setting year).
There were 242 SPACs created in 2020. This is four times the number created in 2019, according to SPAC Insider. The average size of a SPAC in 2020 was $335 million, nearly ten times the amount back in 2009.
Jeff Zajkowski, head of U.S. equity capital markets at JP Morgan Chase & Co, was quoted in the Wall Street Journal, “With interest rates near zero, there are few asset classes out there that offer a return above inflation. And U.S. equities is one of those, including IPOs.” The ease and success that IPOs were launched within 2020 and the familiarity and comfort investors developed with SPACS makes it seem certain that we will see another above-average year of activity.
There is no shortage of interesting privately held companies that are worth over a billion dollars. Unicorns like Robinhood, which in December brought Goldman Sachs in to advise them on going public in 2021. Others include the bitcoin exchange Coinbase Global Inc. and grocery-delivery service Instacart Inc. There are also international companies that have signaled they have plans to go public and may seek listing on a U.S. exchange. One notable example is South Korean e-commerce company, Coupang Corp. All indications are there will be a full calendar of opportunities for investors to pick through.
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