The record for initial public offerings in one year will be broken in 2021 as IPO shares continue to grab the headlines.


One of the main reasons for this is the tsunami of startups that went public last year through Special Purpose Acquisition Companies, or SPACs.

The previous record for IPOs completed in one year was set in 2000, when the tech industry jumped into fifth gear thanks to the rise of the Internet. IPO stocks were soaring, including companies with little more than an internet idea and no income – the infamous dot-com era that led to the dot-bomb bust.

Exuberance took the number of IPOs in 2000 to 406 and raised $ 93 billion, a record that has lasted for 21 years.

Strong order book of IPO stocks

But 2021 seems to break this record. Renaissance Capital estimates that there will be 875 IPOs this year, more than double that of 2000. This includes 500 PSPCs and 375 traditional IPOs. Even more impressive, Renaissance expects a whopping $ 250 billion in proceeds this year, nearly three times that of 2000.

Renaissance’s estimate assumes that the stock market remains stable. Because as the stock market goes, so does the IPO market.

“Although trading has been volatile recently, if the stock markets remain healthy there is no reason to think things will slow down,” said Avery Spear, IPO market analyst at Renaissance Capital, which operates two IPO-focused exchange-traded funds. “There is a very strong backlog heading into the fourth quarter and we expect issues to remain active in the fall,” she said.

Third Quarter IPO Shares Raise $ 27 Billion

In the third quarter, 94 IPOs raised $ 27 billion. In terms of transactions, this was the third busiest quarter since 2000.

Technology and healthcare were the most active sectors, together producing two-thirds of IPOs. Tech IPOs generated the most revenue at $ 10.8 billion, more than double that of the next closest industry.

The healthcare IPO activity was mainly driven by biotechnology, although healthcare services, healthcare equipment and diagnostics also rose.

Among the notable IPO shares in the third quarter were Toast (TOST), Freshworks (FRSH) and Robinhood Markets (HOOD).

Toast’s IPO raised $ 870 million for the fintech company, with shares climbing 56% on the first day of trading. Freshworks raised $ 1 billion as its stock jumped 32%. Robinhood raised $ 2.1 billion and climbed 24%.

The third quarter performance follows an explosive second quarter that saw 118 deals and raised $ 40.6 billion.

Looking ahead, some 114 companies are in the process of going public and looking to raise more than $ 20 billion, Renaissance said.

Fourth Quarter IPO Candidates

Likely fourth-quarter IPO candidates include electric vehicle maker Rivian, mobile payment company Stripe, grocery delivery company Instacart, Indian online retailer Flipkart and semiconductor company GlobalFoundries. .

Others include Brazilian digital bank Nubank, which is backed by Warren Buffett Berkshire Hathaway (BRKB), artificial intelligence firm Databricks, and global investment firm TPG.

PSPCs are the number one reason the IPO market is on fire. They are not your typical IPO. SAVS are initially shell companies that collect funds by issuing shares, which will be used to acquire a private company and make it public.

Once the transaction is completed, PSPC is merged with the acquired company. It then begins trading under a new ticker representing the newly created public company.

“SPACs have provided an opportunity for a significant return on investment and when it exists, people move quickly,” said Brandon Bortner, Securities and Capital Markets Practice Partner at Paul Hastings. “It also provided businesses with a quick way to raise funds to make their businesses more competitive. “

PSPC’s IPO craze began in Q4 2019 with highly successful offerings from the spaceflight company Galactic Virgo (SPCE) and DraftKings (DKNG), a online betting company. The most recent include the electric car company Lucid group (LCID) and personal finance company SoFi Technologies (SOFI).

Although SPACs are not new, they have received renewed attention. Among the catalysts was the Covid-19 pandemic, which shut down the IPO market for about two months. This happened as the IPO market accelerated and built up a backlog.

PSPC inventories helped reduce the backlog, and then it became a craze. Typically, around 15 PSPCs were created per quarter. In the third quarter of 2020, it jumped to 82, rising to 129 in the fourth quarter, then hitting a record 298 in the first quarter of this year.

He dipped to 64 in the second quarter, then rebounded to 79 in the third.

SEC takes a cautious eye on PSPC stocks

But a big party attracts the police. In this case, the Securities and Exchange Commission came knocking on the door.

In April, the SEC began to tighten the PSPC accounting guidelines, putting an abrupt end to the creation of PSPC.

Last week, according to Reuters, the SEC asked key SPAC auditors to more strictly account for public shares in these shell companies. Concerns that the SEC is looking for ways to upset long-standing practices in the SPAC market have caused the inventory generated by SPAC to plummet.

Prior to that, in February, concerns mounted that the PSPC market was close to a bubble due to rampant speculation causing some PSPC stocks to surge rapidly.

The result is evident in the performance of the Defiance Next Gen SPAC Derived ETF (SPAK). It was the first ETF to offer exposure to SAVS.

Since peaking in February, the SPAK ETF is down 34%.

Recent IPO stocks are where you often find some of the best stocks in the market. New IPOs are usually in their early stages of growth. A great potential for profit growth is usually what fuels the price performance of an IPO stock. IBD’s IPO Leaders section has special selection criteria to find promising stocks with strong fundamental and technical characteristics.

Please follow Brian Deagon on Twitter at @IBD_BDeagon to learn more about technology stocks, analysis and financial markets.


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