Going public is a turning point for companies. They use an Initial Public Offering to attract investment and acquire new positions on the market.
There was an IPO boom in the US in 2020. Basically, the boom is related to SPAC (Special-Purpose Acquisition Company) offerings. In the first quarter of 2021, they accounted for 68%. We wonder whether this trend will continue, and what the predictions are for the rest of 2021.
What are the IPO trends in the USA today?
In this section, we use the term special-purpose acquisition company frequently, as it is one of the prominent IPO trends of the last year. Some experts consider SPAC to be a bad idea for retail investors. Yet, others see it as a process of democratizing early-stage investment.
Andrew Smith, one of the chief strategists of the private equity fund Delos Capital Advisors, says:
“If you go and make an investment like that, you need to be prepared that you could potentially lose all of your money. You could potentially not have any return on your money because it takes two years for this to go through its cycle process of getting an IPO done.”
What was in 2020:
- 116 SPACs started in the third quarter (this accounted for 56% of the total number of initial public offerings for this quarter)
- in the fourth quarter, 87 IPOs through SPAC became 52% of the total
- for all of 2020, 50% of IPOs fell on SPAC
What is in 2021:
- Dominant companies
The first quarter is a record high since 2014. Ten IPOs debuted with over $23 billion. Among them are a variety of companies, although many were in the technology sector.
- Dominant sector
- Venture capital and private equity
- Considering the amount of venture capital that IPOs attract, revenues are lower by $10 billion as compared to the fourth quarter of 2020.
- The dominance of SPAC is the reason for the decline in venture capital and private equity financing. The average activity of such IPOs over the past decade is about 48% per quarter. In the first quarter of 2021, there was a decrease to 7.4%.
- Mergers and acquisitions
SPAC needs consolidation of companies which can lead to an increase in the number of mergers and acquisitions. From the beginning of this year to April, there were 112 mergers, while in 2020, there were 105.
Predictions for IPO trends in 2022
The average IPO price in the US has increased to 180 million U.S. dollars. And the typical IPO price remains at its all-time high. Throughout 2021 the global IPO market broke records and has consistently remained strong. The technology sector was the most active and continues to be a leading one in the market, followed by healthcare, including biotechs, medical devices, and health services providers.
In 2022 it’s expected that IPOs will remain flexible as their timelines may shift. Experts predict that the fintech companies will be dominant in the market as well.
What is IPO POP?
POP (Public Offer Price) is the value of individual shares set for the initial offering.
It includes the following variables:
- share prices of companies with similar business activities
- the growth potential of the securities issuer
- the IPO share price
The responsibility for defining the POP lies with the underwriters.
IPO POP in 2021 showed the following tendencies:
- The data shows that IPOs are less active in the market compared to the first quarter of 2020. Some debuts have failed, and the shares of some organizations have fallen.
- In April, there was a decrease of 20% in the average value of the initial public offer price. In May, the figure dropped to 18%. This data does not apply to SPAC.
- The IPO market has cooled significantly after a hot first quarter as shares in newly listed companies fell, and some high-profile debuts failed.
- In May, most of the debuting companies were growing. Although, some of the participants in the public market failed on the first day of trading.
IPO stock price trends
The inflation and increased interest rates put great pressure on the average IPO share price. The severity of inflation and the central banks’ response will determine how big of an effect these two aspects are going to have on the IPO market.
Public listings have become appealing to startups due to high valuation multiples, however, this also creates a risk. Volatile price swings are not typical IPO behavior. This risk became apparent recently after many newly public companies underperformed in 2021. This may have an impact on the valuation of future issues and shape future IPO stock price trends.
The largest IPOs in the US in January
As of January 2022, the largest IPO in the US still remains Alibaba Group Holding Limited at nearly 22 billion U.S. dollars. It’s followed by Visa and an energy company ENEL SpA.
To facilitate IPOs and securely exchange data, businesses commonly rely on the use of virtual data rooms. To learn about the benefits and opportunities these solutions have to offer, check out our article on data rooms for IPO.