After an unexpected pause in the market brought on by the COVID-19 pandemic, investors are starting to ready themselves for new IPO offerings. As they tentatively recover from economic uncertainty, companies are seemingly dipping their toes back into public offerings and starting to reanimate frozen IPO plans.
Initial Public Offerings came to a grinding halt in March 2020 as markets across the world reeled from the unprecedented effects of Coronavirus-related shutdowns across all economic sectors. With a number of high-profile companies poised to enter the public market in early 2020, investors saw economic activity come to an abrupt stop once the virus started impacting exchanges around the globe.
The end of 2019 and beginning of 2020 saw a burst of activity on the IPO market, with 21 new IPOs in January 2020 and February 2020. Then, in March 2020, when The World Health Organization declared the novel Coronavirus a global pandemic, the S&P suffered its fastest fall into a bear market on record. After approximately 11 years and 2 days, the bull market was over. At least 20 companies postponed their IPO launches, with only a few testing the waters. In April 2020, Zentalis Pharmaceuticals and WiMi Hologram Cloud went public, only raising $83 million, the smallest monthly haul since 2016.
Now, as more sectors reopen and the world adjusts to the realities of the COVID economy, some companies have reanimated their IPO offerings in hopes of stimulating the market and spurring economic activity and growth for themselves and the ailing economy.
Rushing to market before another downturn
Some experts attribute the revived interest in IPOs to both pent-up demand and pent-up supply, with companies and investors both itching to get back to their normal activities. The revival points to renewed optimism on a broader scale. Rather than any one blockbuster IPO, the market may be experiencing a chain reaction as small but profitable companies slowly rebuild investor confidence. Another driving factor may be a sense of urgency to push companies public before any further deteriorations in the economy and investor zeal. Going to market before the November 2020 presidential election might also factor into the decision, as some worry that a change in national leadership could radically affect taxes and regulations that companies and investors weigh when evaluating risks.
At the start of the second quarter in 2020, listings were down 48% year-on-year, with a 67% decrease in proceeds from April 2019 and May 2019. However, June 2020 saw a strong rebound. The tech, industrials, and healthcare sectors saw the biggest successes, with 85 technology companies raising $16.9bn, 83 industrials IPOs raising $9.6bn, and seven healthcare IPOs that raised $15bn. Analysts expect strong demand for IPOs as markets reopen, with close to 90 IPOs completed by the third quarter 2020—on track to exceed the annual average of 150-175 by the end of the year. Biotech companies, even those not engaged in Coronavirus-related research, have done seemingly well in recent months. The price of Forma Therapeutics shares more than doubled since they went public on June 18, 2020 and Pliant Therapeutics saw the value of its shares grow by 90% since early June 2020.
Taking the roadshow off the road
Despite renewed activity, it’s not exactly business as usual in the financial sector. Due to social distancing restrictions, companies and investors are holding shorter, more efficient online pitch meetings, skipping the usual whirlwind of in-person meetings and coast-to-coast flights. The shorter, virtual roadshows and toned-down pitch meetings seem to have a positive effect, as executives and investors skip the hotel conference rooms and get down to business from their home or office. Companies like Slack, Warner Music, and JDE Peet’s have already conducted successful online roadshows. No one expects the face-to-face meeting to disappear entirely. For some companies and investors, that literal facetime is key to building trust at the beginning of a relationship. But a hybrid approach can benefit both companies and investors, saving them time and money.
The wave of uncertainties caused by the pandemic has also forced companies to provide a higher level of disclosure, as their registration statements seek to address how they’re managing disruptions and delays. By alerting investors early to any potential risks, companies reduce their own liability in the event that their stock prices fall below expectations. With the uncertainty of the pandemic looming over us for the foreseeable future, we believe these wide-ranging risk disclosures are likely to become more common and more extensive.