The new issues this year shot high above and will go down in record books as the highest number in history, even surpassing the 90’s dot.com boom.
By 23 Dec, 1,006 initial public offerings raised $315.6 billion, the highest recorded number since Dealogic began keeping tabs on the sector in 1995. In 1996 about 848 companies went public; this had been counted as the highest in number and had not yet been surpassed since then. During the dot.com boom, IPOs collected around $78.6 billion.
This year’s IPOs have also more than doubled the number of companies that went public last year. In 2020, 457 companies listed their shares to the tune of $168.7 billion.
The bulk of this year’s listings were special purpose acquisition companies or SPACs. This basically means that 396 traditional IPOs collectively raised $153.5 billion, making this year the most active year for new issues since 2000.
Jeff Thomas, A Nasdaq senior vice president and head of western U.S listing and capital markets, was quoted as saying that this was the busiest year this century for the U.S IPO market. “More companies are going public than ever before,” said Thomas.
Low-interest rates combined with government stimulus have helped valuations rise to astronomical numbers in the IPO market in 2021. Also, the fact that companies also have more options than ever before when they consider going public influenced the record numbers.
Companies no longer have to follow the traditional route in order to have their shares listed but can consider a direct listing or merging with a SPAC. “When companies have more choices, they’re more likely to pursue a public offering,” said Thomas.
Why direct listings are getting noticed.
This year, the busiest sectors were Healthcare and Technology. Biotech, a part of the Healthcare sector, witnessed the most deals: 155 traditional IPOs valued at $29 billion. Technology delivered 128 traditional offerings, valued at $74 billion. It is expected that both sectors will continue with the stellar performance even in the new year.
In the trading game, though, bigger doesn’t always mean better; 28 companies in 2021 raised at least $1 billion in last year’s IPO market. However, 14 of them are currently trading below their offer price.
Affirm Holdings (ticker: AFRM), the payments company that raised $1.2 billion in January, has recorded the best aftermarket performance of this year’s notable offerings. Affirm shares are up more than 100% from its $49 IPO price.
On the other side of the spectrum, the most disappointing performance comes from Oscar Health (OSCR), the insurtech that made $1.4 billion in March. Oscar’s stock is down 79% from its $39 offer price.
This year’s IPO will be remembered as the busiest in history and also one of the worst-performing. Inflation fears, Omicron jitters caused most of the chaos in the final quarter of the trading year, despite the initial rise in new issues.
IPOs averaged a 10% decline in the aftermarket, the worst-ever record in over a decade. According to Matt Kennedy, Senior IPO strategist at Renaissance Capital, the IPOs in 2020 produced an average aftermarket return of 76.3%.
“Being part of history is little consolation when returns are poor…Investors this year were buying everything, and now they’re paying the price for it,” Kennedy said.
The Renaissance IPO exchange-traded fund (IPO), which tracks companies for three years after going public, dropped 8.5% for the year. Compare this performance to the S&P 500, which is up 28% year to date.
The IPO market typically closes in late December, only to re-open in mid-January because of the holidays. Kennedy expects that there will be a slow start to the IPO market next year because investors have turned more cautious.
Roughly 400 companies have filed paperwork to go public, representing close to $72.3 billion. A few big names are part of the group and could list in 2022; Yoghurt maker Chobani, Social media platform Reddit, Brazilian steakhouse Fogo de Chao, and private equity firm TPG.
There’s also companies in the group that are expected to file for an IPO but have yet to initiate the process; Digital bank Chime, the grocery delivery start-up Instacart, A home remodelling platform Houzz, an AI software start-up Databricks, A chat service Discord, among others.
One amongst the group that seems slated for an IPO win owing to its popularity is Stripe, a payments processor. The company was valued at $95 billion in its last fund-raising round. If all goes according to plan, Stripe would be the biggest U.S company to list since facebook in 2012.
In the IPO market, one of the biggest trends of the year was the strength of consumer IPOs. Several deals made strong debuts, including; Krispy Kreme (Ticker: DNUT), Roger Federer’s sneaker company On Holding (Ticker: ONON), and coffee chain Dutch Bros Inc. (Ticker: BROS).
According to Greg Martin, A managing director at rainmaker securities, a company that represents traders of stocks of soon-to-be public companies, a few consumer companies that went public emphasized their use of technology and used catchphrases such as “technology-enabled”, “digitally” native or “direct to consumer” in their regulatory filings.
The strategy seems to have worked for a few companies that have come out looking and sounding like technology companies, even if their core products have nothing to do with tech. For instance, eyeglass seller Warby Parker (Ticker: WRBY), salad chain Sweetgreen (Ticker: SG) and sustainable shoemaker Allbirds (Ticker: BIRD) all used the same strategy in their filings.
The result of adopting the strategy is self-evident, with Allbirds soaring at 93% on its first day of trading; Sweetgreen also rose 76% during its debut last month. Warby Parker took the direct listing route to go public and gained nearly 10% from its opening price. Such successes are an indication that consumer IPOs are expected to return next year.