After an improbable comeback in the second half of the year, the US IPO market delivered the decade’s biggest year in terms of exit value. Richly valued tech offerings pushed the value of all 120 VC backed IPOs in 2020 to a combined valuation of nearly $260 billion. These mega- IPOs have refashioned the relationship between public and private markets.
In the UK we are following Wall Street’s lead with Moonpig , the online greetings card company, confirming plans for a £1 billion-plus stock market listing. The float will be the first significant stock market flotation of the year and is expected to prompt a wave of technology-focused IPOs from businesses that have defied the pandemic.
Beyond the blockbuster listings in the US, 2020 will be remembered for the introduction/acceptance of a variety of ways in which private companies can tap into the public markets: from new IPO pricing mechanisms to Special Purpose Acquisition Companies (SPACs) and direct listings. The crop of deals broadened the pool of public stocks serving up fast growing companies to tech hungry investors. Here in the UK the Stock Exchange is exploring how similar mechanisms can be utilised.
So what can we expect here in the coming year and what can we learn from our friends across the pond:
- Valuation multiples have risen across the board, with growth stage technology companies leading the charge. This has closed the gap in valuation multiples for private and public companies and made IPOs more attractive to large tech companies.
- Strong investors’ appetite for new stocks follows a decades-long decrease in the number of US-listed public companies – a trend mirrored in the UK over the past twenty years.
- Whilst tech stocks attracted most of the headlines in 2020, healthcare and biotechs continued to lead US IPO activity in number. There were 82 healthcare deals compared to 16 for the IT industry and 11 consumer companies.
- In monetary terms debuts by tech and consumer names accounted for nearly three quarters of the total exit value.
- Biotech and healthcare stocks, traditionally viewed as defensive plays, can be attractive even in times of economic weakness. Investor interest in the sectors only intensified as the pandemic set off a worldwide race for vaccines and drug treatments.
- Some of the year’s largest deals – Airbnb, Doordash, Unity Software – used an auction process to settle on IPO share prices. Each of the companies using the new auction approach eventually priced their IPOs well above their initial targets indicating the process was effective at gauging demand.
- The auction process did not prevent sharp first day rises that are sometimes viewed as evidence that the IPO was underpriced. It can also be a clear indication of wider investor demand.
- Palantir and Asana revived the direct listing, an IPO alternative in which no new shares are sold and the stock price is set by public demand. Both companies saw their share price rise sharply once listed.
- The rapid rise of SPACs has also given tech start-ups a third path to the public markets.
- 2021 is expected to bring more improvement and innovation in how companies can go public.
The wide investor exuberance for all things tech has been bolstered by a number of analysts likening the global economy to a “coiled spring” following the challenges of 2020. It has been suggested the post vaccine world could resemble the Roaring Twenties, a time of headlong economic growth that followed World War 1 and the last global pandemic.
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20 January 2021
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Private Equity Surge of IPOs Capitalises on Frothy Public Markets Pitchbook News 18.12.2020
Forecasting the World in 2021 the Financial Times 30.12.2020
2021 European Private Capital Outlook Pitchbook Analyst Note 14.01.2021
Silicon Valley’s Banner Year on Wall Street Pitchbook News 10.12.2020