Mid-Year Scale of US IPO’s Gains New Feat by Surpassing Record Set 2020

Wall Street’s record stock listing activity has not shown signs of slowing down. According to data from Dealogic, there are still more than six months before the end of this year. The total initial public offering (IPO) in the United States has reached 171 billion U.S. dollars, exceeding the 2020 record of 168 billion U.S. dollars. The IPO boom is driven by sky-high corporate valuations. 

The Fed’s low-interest rates and monetary stimulus measures after the new crown epidemic have caused valuation inflation. 

This has contributed to a wave of speculative frenzy, which is not only beneficial to traditional listed companies but also to special purpose acquisition companies (SPACs) established to raise funds through IPOs.

In the second half of 2021, as China’s largest online ride-hailing company DidiChuxing, online brokerage Robinhood Markets Inc. and electric car manufacturer Rivian Automotive LLC, some high-profile start-ups are preparing to launch multi-billion-dollar stock offerings and IPOs. 

The gold rush will reach new heights.“If the market is still in its current state, we will be very busy with the IPO business this summer and fall,” said Eddie Molloy, co-head of Morgan Stanley Equity Capital Markets in the Americas.

Excluding SPAC’s IPO funding, traditional large-scale corporate IPOs, including South Korean e-commerce giant Coupang Inc. have raised US$67 billion this year, making 2021 expected to be the largest year of such IPOs. According to Dealogic’s data, so far this year, the average single-day return of US IPOs is 40.5%, compared with 28.2% in the same period in 2020 and 21.7% in 2019. The average weekly return in 2021 is 35.7%, which is higher than 32.2% in 2020 and 25.5% in 2019.

Capital market bankers and lawyers estimate that before the end of the third quarter, the funds raised by companies through traditional IPOs (excluding SPACs) may be close to 50 billion U.S. dollars. 

According to Dealogic’s data, as of June 15 in the second quarter, IPO funds have reached 24.1 billion U.S. dollars. According to investment bankers, by the end of this year, U.S. IPO funds may reach $250 billion to $300 billion or more. This is an astonishing number that was once considered unimaginable.

The prosperity of SPAC drives a new IPO record in 2021. The above-mentioned record scale is mainly driven by the listing boom of special purpose acquisition companies (SPAC). SPACs, or blank cheque companies, are listed shell companies that raise cash with the sole objective of merging with a private company in two years of listing. This process makes the private company go public.

According to data from SPAC Research, in the first quarter alone, the listing of SPAC raised nearly US$100 billion, much higher than the US$83 billion in 2020. Despite the recent slowdown in SPAC transactions, 339 SPACs have been established this year, raising approximately US$105 billion, accounting for nearly two-thirds of the total IPOs. In 2020, SPAC transactions accounted for less than half of the IPO funds raised.

Lawyers and Investment bankers also pointed out that the capital market boom is attracting more companies that would have been privatized for a longer period of time, and the long queues waiting for IPOs will be more intense in the foreseeable future.

“Due to the surge in SPAC transactions, many companies see this as a good time to enter the market and achieve attractive valuations. I think this has led private companies to be more receptive and interested in pursuing public listing options,” the law firm Ropes &  Paul Tropp, co-director of Gray’s Capital Markets Department, said.