The sudden onset of a global pandemic has shaken up economies around the world. When COVID-19 tightened its grip in February and March, markets plunged deeply, dashing—or at least delaying—the hopes of many investors who had anticipated public offerings this year. What has been the overall effect on IPOs, and what are analysts saying about prospects for public offerings in the near future?
Following the stock market crash that began in February, global IPO activity slowed dramatically in April and May, with proceeds down 67% and volume down 48% compared to 2019. IPO activity began to rebound in June as the stock market picked up speed again, with proceeds more than five times higher in June than in April. For the first half of 2020, however, both deal volume and proceeds were 30% below the first half of 2019 in the Americas, while globally, proceeds were down 8% from the previous year. Among companies that did reach IPO during the first half of 2020, technology, industry, and health care sectors were dominant, raising more than 61% of the total global IPO capital raised.
With the stock market on the rebound, many companies refocused their efforts to go public before the 2020 election, which many fear will inject new uncertainty into the markets. Overall, Q3 2020 saw the largest amount of IPO proceeds and second highest number of deals in two decades. The Americas saw 18% more IPOs and a 33% increase in proceeds for the quarter. As of third quarter reporting, year-to-date global IPO activity was up 14% and proceeds were up 43% over 2019.
Even in 2020, the U.S. is a leader in IPO activity. In the third quarter of 2020, US exchanges accounted for 82% of IPO deals and 87% of proceeds. Much of this activity has occurred via special purpose acquisition companies (SPACs), which have no commercial operations of their own but are set up for the sole purpose of acquiring another company with money raised in an IPO. As of October 2, 46% of IPO fundraising for 2020 occurred via SPACs, with 84 of these companies raising more than $24 billion in Q3 2020 alone.
Many factors are at play that can fuel market volatility in the coming months. The outcome of the election will undoubtedly have a profound influence on U.S. economic policy in the near future. Questions loom about the prospect of a new federal stimulus package amid increasing numbers of COVID-19 infections, raising the specter of renewed lockdowns and a W-shaped recovery. As market stressors increase, anxious investors may begin looking to lock in their profits before the next slide. Even so, EY anticipates a positive fourth quarter for IPOs, with a healthy array of deals ready to move forward. Until the COVID-19 epidemic is under control, however, economic uncertainty will persist.
WRP provides expert guidance for our clients as they navigate the IPO process, educating them about their choices around stock options, alerting them to critical decision making deadlines, and providing ongoing financial planning advice to make the most of their opportunities.
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