The year of IPOs

The upcoming Initial Public Offering of Ant Financials, Alibaba’s subsidiary dedicated to financial services, is widely heralded as possibly being the largest IPO in history. Such a record operation would be the crowning of 2020 as one of the best years ever for IPOs.

IPOs have been a staple in investors’ vocabulary for a long time. During the 1999-2000 internet bubble, retail investors and institutionals alike rushed to invest in the most sought-after names. 2000 is still the year with the largest number of IPOs realized to date, with 397 operations recorded that year.

When the bubble burst, it took time for investors to come back to new offerings but the strong confidence in the economy alongside with the IPOs of some well-known names, like Google, recharmed investors with IPOs. The number of IPOs per year grew by 146 in 2003 to 314 in 2004, and the number of new issues remained strong until 2007 when the great financial crisis and the ensuing cash crunch on the market reduced the number of IPOs in 2008 and 2009 to below 80 per year.

Since then, the number of new issues has remained in between 150 and 300 per year, with some IPOs breaking ground like Facebook in 2012, Alibaba in 2014, or Aramco in 2019.

With buoyant markets in 2019, a number of well-known and respected companies were planning to do IPOs in 2020 but the impact of Covid-19 on the economy, the financial markets and investors’ confidence reduced the volume of new issuance to a trickle during the first months of the year. However, the vast stimulus packages launched by governments globally to keep the economy afloat, alongside the liquidity lines provided by central banks, helped accelerate the economic rebound and improved access to capital, which in turn increased investors’ appetite for investments.

As a result, a large wave of successful IPOs have come to market since June 2020, with September 2020 alone recording a total of 69 during the month. As of 23 October 2020, the number of IPOs for the year has already reached a total of 303 and could very well become the year with the most IPOs since 2000.

Looking at the IPOs of 2020 though, key trends are clearly appearing that need to be taken into consideration by private banking clients who may be worried about the sheer volume of operations on the market.

Trend 1: Technologies

A number of well know technology companies delayed their IPO due to the availability of private financing, thus they remained private. Companies like Snowflake for example, the cloud data platform, or Unity Software, the app development company, were well known to private investors for many years, coming to market in 2020 while they probably could have done so earlier.

Trend 2: Healthcare

In a year defined mainly by the impact of a new virus on societies and economies globally, in the wake of unprecedented amounts of public funding being made available for medical research, unsurprisingly, many healthcare-focused and healthcare technology companies have come to market.

Trend 3: Financials – The “year of the SPAC”

Finally, the third trend driving the surge in IPOs in 2020 has been the advent of Special Purpose Acquisition Companies (SPAC) – often called “blank check companies”. SPACs are investment holdings raising capital with the intent to acquire a company at a later stage. Factset recently reported that 47% of all IPOs during Q3 2020 were related to SPACs (source: https://insight.factset.com/u.s.-ipo-market-spacs-drive-a-third-quarter-ipo-surge). Such large volumes of cash raised could create a wave of mergers or business combinations in the years to come that will need to be monitored.

For our Wealth Management clients, these dynamics on the IPO market are key trends to monitor in the overall financial market. In our “Five Investment Themes for 2020”, BNP Paribas Wealth Management has clearly earmarked innovations in technologies and healthcare as key drivers for investments. Our relationship managers, as well as our asset management experts, are constantly analyzing market activity and dynamics to help our clients take the best decisions in relation to their investment profile. This new wave of IPOs will only enhance the options available for them to invest – or not – behind certain key trends.