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AST: Will Record Investment in IPOs Continue Through 2021?

IPO’s, or Initial Public Offerings, have seen a huge boom in investment recently, as investors are banking on significant growth post-Covid-19. 

Louis Cordone, Senior Vice President of Data Strategy at AST, a tech-enabled, integrated, professional services firm that assists companies and their shareholders achieve their goals through transfer agent and registrar services, issuer and mutual fund proxy services, equity plan solutions and more.

Here Louis shares his thoughts as to whether the record number of IPO investments will continue throughout 2021. 

Louis Cordone, Senior Vice President of Data Strategy at AST

The pandemic may have negatively impacted some business sectors, but investors are betting on growth and companies are looking to the equity markets to raise capital. An all-time yearly total number of 480 IPOs were on the US stock market in 2020.  The number was 106% more than that of 2019. It is also 20% higher than the previous record yearly IPO total of 397, reached in 2000. SPACs expanded also: according to CNBC, 165 SPACs were filed in 2020.

The top reason IPOs intrigue investors is the lack of interest-paying assets these days.

Jeff Zajkowski, head of America’s equity capital markets at JPMorgan Chase & Co, said in a Bloomberg article, “In a zero-interest world, one of the only asset classes that offers the hope of performance that beats inflation is equities.”

IPO performance helps create significant demand in the current climate of nearly non-existent interest. Investors looking for a return that beats the rate of inflation must seek out the best-performing stocks. IPOs offer one of the most likely opportunities for significant growth.

Rock bottom interest rates will likely continue for some time, thanks to pandemic-triggered conditions. Low rates help displaced workers keep up with bills and spur business expansion.  IPOs that deliver profits are a way for investors to make money while supporting an eventual return to a normal economy.

The digital economy acceleration during the COVID-19 pandemic is another contributing factor of the IPO expansion. With so many staying home in response to the pandemic, retail shopping via online orders has dramatically increased, spurring the need to grow online businesses and data services. Thriving enterprises needing cash to expand spawn IPOs, offering investors the chance to make some serious cash.

Customs are changing at a rapid rate. Online shopping and cashless payments were already trending before the pandemic hit. The need to maintain social distance in order to stay safe from the virus spurred many formerly hesitant individuals to adopt new tools based on technology. As a result, many are looking to invest in online and tech companies.

Free Time and a Shift in Focus Spurred IPO Formation

The pandemic triggering the necessity of working from home actually gave organisers more time to prepare deals and market listings for IPOs. Instead of jetting about to meet investors, deals are pitched via conference calls. Virtually executed deals make stock sales simple.

The “New Economy” anticipated as America’s new administration takes office promises to offer a significant economic relief program to combat the surges in COVID-19.  With more economic relief on the way, investors have confidence that value is backstopped by the government’s support of the effort by companies to take on more risk and seek growth opportunities.

The IPO Wave Should Continue to Soar 

Rock bottom interest rates won’t likely rise soon, thanks to the necessity of stimulating the economy, saving everyday Americans from financial ruin, according to a CNBC  post.

The world changed in 2020, and investors obviously noticed. The result has been the surge in “interest that investors have in companies that have benefited from the digital economy, and from biotech and some of these new vaccines,” says Kathleen Smith, principal at Renaissance Capital, in an interview addressing the topic of 3 Reasons Behind the Hot IPO Market This Year. “The new economy companies are really the bread and butter of the IPO market,” Smith added.

An IPO is the most cost-effective way for a company to go public. That fact benefits both investors and growing businesses. What’s good for a company is obviously good for those set to reap profits along with the business.

Want more good reasons to purchase IPOs? A traditional IPO system can give favoured clients the first day “pop,” Wall Street banks charge a fee of around 7% to get firm on an exchange.

IPOs have made money for many, throughout 2020. IPO and Spinoff stocks have managed to outperform the S&P500 recently.

Investors who have made money on IPOs will strive to invest in more. This chain reaction creates a healthy supply of capital slated for IPOs. It’s a win-win situation, strongly benefitting both investors and businesses, a recipe for healing economic difficulties.

Direct Listings and SPACs Have Seen Outsized Activity Also

SPAC isn’t a four-letter word with investors anymore. Once considered a not so honourable way to go public, the practice of merging into a shell company that’s already public, to gain cash has lately been utilised by businesses from a variety of sectors.

SPACs (Special Acquisition Companies) which gather money in a shell company first, then seek out a company to fund have starred in 2020, along with IPOs. Investing in SPACs must garner trust in their leaders to entice investors to basically give them blank checks to invest in a growing company of the SPAC manager’s choice.

Advantages of investing in SPACs include the opportunity for liquidity at a time of stock market volatility, their speed to market, and the fact that they are not subject to IPO lockup rule. In a typical IPO, shares purchased must be held for a designated period, often six months, though it may be shortened by bankers if deemed necessary.

Direct listings have been popular with investors, as they are not subject to lockup and are less expensive than IPOs. They are a great option for gaining operating expenses, as they cost much less than hiring an underwriter and paying his or her commission.

The upward trend of IPO formation holds promise for investors in 2021. IPOs have performed exceptionally well in 2020, outpacing the S&P 500.  This performance will continue to make IPOs attractive to investors, seeking to maximise their investments.

Author

  • Polly is a journalist, content creator and general opinion holder from North Wales. She has written for a number of publications, usually hovering around the topics of fintech, tech, lifestyle and body positivity.

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