U.S. IPO Market: SPACs Drive 2020 IPOs to a New Record

In 2020, U.S. equities were buoyed by the Fed’s accommodative monetary policy in the face of the COVID-19 pandemic, the successful development of multiple vaccines, and a late-year federal stimulus package. As a result, the major indices reached new highs in December. This positivity was reflected in a surge in initial public offerings on U.S. exchanges in the second half of the year. We saw a record number of IPOs in the third quarter, 208, and activity remained strong through the fourth quarter with 168 IPOs recorded. While fourth-quarter activity came in below the breakneck pace of the third quarter, companies raised an astounding $53.8 billion.

For the year, FactSet data shows that the volume of IPOs more than doubled from 2019, with 494 IPOs recorded for all of 2020. In aggregate, IPOs raised $174 billion in 2020, a 150% increase over 2019.

IPO Highlights and Trends

SPACs Dominated 2020

The second-half surge in IPO activity was fueled by a boom in offerings from Special Purpose Acquisition Companies (SPACs), sometimes called blank check companies. SPACs are companies that are created with the express purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similar business combination with one or more businesses. In the third quarter, there were a whopping 116 SPACs that went public, representing 56% of all IPOs for the quarter. In the fourth quarter we saw 87 SPAC IPOs, making up 52% of the total number. For the year, SPACs accounted for half of all IPOs.

As private companies increasingly look for innovative ways to bring their shares to public markets, it will be interesting to watch this trend going forward and track the performance of these SPACs.

Two More Companies Opt for Direct Listings in 2020

There were just two direct listing IPOs over the previous two years: 2018 brought us the Spotify debut and Slack went public in 2019. We saw two more technology companies opting for direct stock listings in 2020, bypassing the traditional IPO route via Wall Street underwriters; both Palantir Technologies and Asana went public on September 30. Both stocks have performed well since their debuts; Asana’s stock is currently up 33.5% from its offer price while Palantir stock is up 225%. While many thought Spotify and Slack would set off a new trend in direct listings, that has not been the case.

2020 Saw Larger Public Offerings Overall

The average IPO size in 2020 was $353 million, up from $288 million in 2019. In 2020, 18% of all IPOs had gross proceeds above $500 million, well above 2019’s 12% share. There were an astounding 88 companies that reached this threshold, with a record-breaking 28 raising over $1 billion. There were seven mega IPOs in the fourth quarter, led by well-known names Airbnb (priced December 9, raised $3.5 billion) and DoorDash (priced December 8, raised $3.4 billion).

Ten Largest IPOs in 2020

Source: FactSet

Finance Sector Leads IPOs in 2020, Both in Terms of Volume and Money Raised

Of the 168 initial public offerings in the fourth quarter, 90 came from the Finance sector, the highest representation of any sector. SPACs accounted for 87 of those 90 IPOs. The Health Technology sector was next with 37 IPOs, followed by Technology Services with 15. The Finance sector also led all other sectors in terms of money raised, with a total of $24.5 billion. The Airbnb and DoorDash IPOs boosted the Technology Services sector total to $13.4 billion, while the Health Technology sector raised $6.6 billion.

The Finance sector led all other sectors in IPO volume in 2020, coming in with a total of 268 IPOs for the year, followed by the Health Technology sector with 103 IPOs. Not surprisingly, the Finance sector led all sectors in terms of total money raised ($92.5 billion), followed by Technology Services with $34.3 billion and Health Technology with $19.6 billion.

IPOs by Sector (Ranked by 4Q 2020 volume)

Source: FactSet

*2020 excludes Palantir                                                                                                                                             

**2019 excludes Slack 

Financial Sponsor-Backed IPOs Continued to Lose Momentum in 2020

In 2020, 116 of the 494 IPOs (23.5%) priced on U.S. exchanges were backed by financial sponsors, i.e., private equity or venture capital firms; this was the lowest share of total IPO volume seen in more than a decade. In the fourth quarter, just 22.6% of IPOs were financial-sponsor-backed. In terms of capital raised, financial sponsor-backed IPOs represented 24.4% of the total gross proceeds in 2020; this was the lowest share since 2008. Just seven of the 28 mega IPOs in 2020 were backed by financial sponsors.

There were 100 venture-capital-backed IPOs in 2020, up 25% from 2019. On a quarterly basis, VC activity peaked in the last two quarters of the year, with 35 IPOs in both Q3 and Q4. The offerings in 2020 tended to be larger, with gross proceeds totaling $36.8 billion. There were six mega VC-backed IPOs in 2020. The size of the average VC-backed IPO was $367.6 million, the highest seen since 2012 when Facebook debuted. In Q4, VC-backed IPOs raised just under $17 billion, the highest amount since the second quarter of 2019 when Uber debuted.

After seeing no private equity-backed IPOs in the first quarter, there were five in the second quarter. With the rebound in equity markets, activity picked up in the second half of the year, with eight PE-backed IPOs in the third quarter and three in the fourth quarter. But for all of 2020, private equity-backed IPO volume fell for a third consecutive year, with 16 offers compared to 19 in 2019, a 15.8% decrease; this was the lowest number of PE-backed IPOs since 2008. The average size of the offerings fell even more dramatically. 2020 total gross proceeds for PC-backed IPOs totaled just $5.6 billion, a drop of 45.9% from 2019, with the average offering size dropping from $546 million last year to $351 million in 2020.

Conclusion

With U.S. equity markets trading at all-time highs, 2021 appears to be off to a good start for companies looking to go public. In fact, the pipeline looks quite healthy. 134 companies that released initial preliminary filings in 2020 are still in registration (this excludes offerings that have been postponed or withdrawn). At the same time, investors continue to monitor the coronavirus numbers as well as economic and political factors that could impact equities.

Note: All statistics are based on FactSet data for IPOs priced during the specified period for companies going public on exchanges in the United States.