With the release of Bill Ackman’s SPAC holding company, which looks to acquire a “mature unicorn” in the near future, one should consider the question “Why are ipos all of a sudden making an appearance?”. We’ve seen many bankrupt stocks, such as Hertz, make huge single day leaps, but ipos so far haven’t been too far off from that kind of behaviour either. Just take a look at Lemonade the insurance company and the SPACs such as Turquoise acquisition which got huge boosts once it was announced that public shares of their companies would be made available. Certainly if there’s one bright spot in 2020, it’s the return of the ipo market.
After the March freezing of markets, when equities plummeted and companies held off on going public, things are picking up speed again. Coupled with an impending presidential election this november, companies are piling in to get their fix while the market is in the green and economic conditions are at least somewhat predictable (who knows what a potentially new presidential regime could bring in).
Ipo release numbers are essentially back on track with the normal amount expected each year. Investors aren’t too keen on the idea of ipos just yet though, as the burn of companies like Uber are still fresh in their minds. However, not every company has done bad and a few have seen a huge spike since going public.
Not only has the ipo market been recovering, but so has the SPAC market. On track to having 25 ipo appearances in just the first quarter (compared to 59 in all of 2019), unfortunately covid had to ruin the party.
With 13 SPACs expected to release so far this year (and hopefully more down the line), we can see that the ipo market has made a return. What does this mean for investors?
What This Means
Primarily, it reinforces the idea of an economic recovery. Companies wouldn’t want to go public during an economic downturn, as share prices wouldn’t do as well as during financially strong times, and so companies are looking to sell now as things start to look brighter in the near future. Another key point that can be made with all of these ipos (as mentioned earlier) is the US presidential election coming up in November, which jeopardizes current political and economic climates and with uncertainty also a factor in the near future, it seems that companies would rather go public now than run the risk of bad timing down the line.
Moreover, it could also be speculated that the recent market frenzies and volatilities could almost be a beneficial factor to soon-to-be public companies. We’ve seen bankrupt shares such as Hertz and JC Penney being propped up by quote on quote “Robinhood traders”, so it could be a fair argument to say that having a decent proportion of speculative traders would aid in driving up prices, as traders bet on speculative potential gains from getting in early on these companies rather than consistently proven fundamentals. That’s not to say high levels of speculation are a huge contributor to the resurgence of ipos, but it wouldn’t hurt the companies if speculation brought share prices to prices much higher than predicted.
Overall, the uptick in the ipo market sends mixed signals. On one hand, companies believe that now the economic environment has climbed back to the point where it would be acceptable to start going public, but on the other, companies could be rushing because of the unsure political environment in the near future. Either way the ipo market is essentially back, and the only question now is if it’s here to stay.