During the COVID-19 pandemic, Initial Public Offerings (IPOs) and Special Purpose Acquisition Companies (SPACs) gained considerable popularity as ways to take a company public. During the multiple lockdowns, companies had lots of time to streamline their business plans and strategize to get them to the next level. As a result, many found 2020 to be the perfect time to take their company public via IPOs or SPACs to help respond to the uncertainty created by the world health crisis and raise funds for their business.
Although there was a slight SPAC slowdown in April 2021, numbers are settling out post-COVID going into the third quarter, and there are still lots of market opportunities for companies looking to show their growth and go public through IPOs and SPACs. Before opening up your business to a national exchange, it’s critical to understand how IPOs and SPACs evolved through COVID and what to expect post-pandemic.
IPOs and SPACs Post-Pandemic
The pandemic has seen its ups and downs for IPOs and SPACs, and in January 2021, issuances of SPACs, in particular, were once again on the rise. SPACs were so popular that by the end of March 2021, there were already 292 issuances, and they had raised $87.9 billion, which exceeded the $83.4 billion total raised in 2020. However, in April 2021, the Securities and Exchange Commission (SEC) announced it was considering new guidelines that would change the way SPACs report information on financial statements for investors. The rate of issuances dropped by almost 90% that month.
Thankfully, as we move into the third quarter of 2021, later in the pandemic, we see these numbers settling back to normal. For example, there was a rush at the end of the second quarter, with 13 SPACs pricing and going public in the last week of June alone. As of September 27, 2021, the total amount raised by SPAC issuances in 2021 so far was $127.1 billion according to the website SPAC Research. SPACs are transforming the entrepreneurial landscape of the world, and there are hundreds of SPACs from 2020 and 2021 still looking for targets as well as new market opportunities for companies to go public. Overall, COVID has had a stimulating effect on financial markets, since they have experienced breakneck growth over the past 15 months, with relatively few roadblocks or downturns and no signs of stopping post-pandemic.
When the SEC announced it was considering new restrictions on SPACs in early April 2021, many companies turned their attention back to the traditional IPO route. Going into the third quarter of 2021, IPOs alone in the U.S. had raised $79.9 billion in proceeds. This number is higher than every year in the past decade except for one, which means that 2021 is on track to go down as the most prolific year for IPOs on record. With the lockdowns over the past 18 or so months, bankers have been laser-focused and able to push as many deals through as possible, taking advantage of stock market highs. Furthermore, between institutional and retail investors, there is lots of money in the market right now, pushing many companies to go public earlier than they originally planned. With 761 offerings as of September 27, 2021, this year has already beaten 2020 in IPO frequency, surpassing its 480 IPOs, and had more than three times as many as 2019, which saw 232. As we look to the last two quarters of 2021, the trend of businesses taking advantage of IPOs to take their companies public is still on the rise.
Business as Usual
Although there will be some changes to the post-pandemic landscape, if you are looking to take your company public through IPOs or SPACs, now may be the perfect time, since the market of potential buyers has perhaps never been bigger. Not to mention, both SPACs and IPOs have proved their resiliency when faced with potential roadblocks such as the pandemic and the SEC statement on potential SPAC restrictions in April 2021. In fact, since April, the issuances of SPACs and IPOs continue to increase each quarter, and numbers are set to be record-breaking yet again in 2021.
This doesn’t mean there are no complications. Currently, one thing that adds a layer of complexity to due diligence efforts would be possible travel restrictions. In these cases, meetings or on-site visits would need to be done virtually, and in an international transaction, one would need to rely more heavily on local counsel. Of course, another thing to be aware of is that because of how hot the market is, the risks involved with IPOs and SPACs increase as well.
However, with so many buyers and so much money to be had within the market, the rewards outweigh the risks for most investors. Thus, the current IPO and SPAC landscape could be an ideal market for companies looking to go public. For many companies, it is no longer a question of if they should go public, but rather how and when.