Peak IPO record set to roll in 2021

After a brief pause, new issuance activity resumed in late May, after the Federal Reserve signaled it would take extraordinary measures to support the economy and the stock market rebounded from a sharp drop. Several stocks that debuted at that time soared, setting the stage for a race to public markets that, after a brief holiday break, is expected to rise again in the new year.

Companies raised $ 167.2 billion through 454 offers on US stock exchanges this year through December 24, compared with the previous record of $ 107.9 billion at the height of the dot-com boom in 1999, according to with Dealogic. The coronavirus pandemic has turned the typical pace of the IPO market upside down, with $ 67.3 billion raised in the fourth quarter. This is about six times the total for the first three months of the year.

As a result of the confusion, the bulwark of the 21st century economy, including Airbnb Inc.,

DoorDash Inc.

and Palantir Technologies Inc.

they are now publicly traded, accessible to the average investor.

The IPO market has been driven by a surprising increase in special-purpose acquisition companies, or SPACs, empty vehicles that raise money through listings and look for companies to merge. They represent a bet that a business still unknown will generate high returns and typify the risk appetite that is feeding new issues and markets more broadly.

Almost half of all fundraising in the IPO market went to SPACs, and the total collected through SPACs this year is almost six times higher than the vehicles collected in 2019, the record-breaking previous year.

The IPO frenzy peaked in the second week of December, usually a quiet period for new offers as the end of the year approaches, when Airbnb and DoorDash more than doubled on their first trading day. This gave the two companies, which have yet to produce consistent profits, valuations that amount to tens of billions of dollars.

These gains raised eyebrows among some who fear that the IPO market is overheated and draw parallels with the period before the internet bubble burst in early 2000. They point to an increase in interest among individual investors, many of whom use a popular brokerage app managed by Robinhood Financial LLC. If history is any guide, they say, these investors are liable to rush out as soon as markets reverse their course.

Colin Stewart, Morgan Stanleyin

Global head of technology equity capital markets, said investors have “unlimited interest” in certain stocks, especially those that have captured the imagination of retail investors. “The movements and valuations of certain stocks are not necessarily based on business fundamentals,” he said.

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

Not all new entrants are receiving a warm welcome from public investors. In the week after the debut of Airbnb and DoorDash, for example, the father of e-commerce site Wish closed below the IPO price on its first trading day.

Few bankers predict that the current pace will slow down anytime soon. A series of startups with more than a billion dollars, such as Robinhood, the bitcoin exchange Coinbase Global Inc. and the food delivery service Instacart Inc., are waiting on the wings. Many other international companies, such as South Korean Coupang Corp. e-commerce companies, are also considering listing their shares on the United States stock exchanges.

And the SPAC frenzy is likely to continue. Famous technology investor SoftBank Group Corp.

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

The spate of activities began in late May, when the biggest offering since the start of the pandemic, the IPO of the insurance policy comparison site SelectQuote Inc.

raised $ 570 million after prices above an initial range. The shares rose 35% on the first day of trading.

Several companies followed, giving investors greater gains. Vroom Inc.,

an online used car salesman who debuted in early June, and Lemonade Inc.,

an insurance startup that followed about a month later, more than doubled on its first trading day. The performance encouraged more companies to move forward with plans for new emissions.

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

The extreme interest in some IPOs, while others languish, made it especially difficult for underwriters to find the right price for the stock launch.

Catch the snowflake Inc.

It went public in September at a price of $ 120, or nearly three times what the data storage company was aiming for when it started selling the shares to investors. Shares even more than doubled on their first trading day and have recently risen more than 150% over the IPO price.

In a sign, companies continue to experiment with new ways to access public markets, Palantir and the small tech startup Asana Inc.

made their debut without raising 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.

Whatever the method, startups’ interest in going public shows no signs of abating. John Chirico, Citigroup’s North American Bank, Capital Markets and Consulting Consultant Inc.,

said that companies “see the benefit and value of being public as never before”.

Write to Maureen Farrell at [email protected]