Global IPO market never hotter than it is right now
Companies are racing to public markets like never before, cashing in on record-high stock prices.
An all-time high of almost US$350 billion (S$469.9 billion) has been raised in initial public offerings (IPOs) in the first six months of this year, according to data compiled by Bloomberg, surpassing the previous peak of US$282 billion from the second half of last year and enriching entrepreneurs and bankers alike.
When the rush for IPOs kicked off last year, stay-at-home technology dominated the scene, seizing on investor interest in anything digital, while special-purpose acquisition companies (Spacs) also flooded the market. This year, with stocks continuing to push skyward, the trend has broadened to include renewable-energy companies and online retailers.
Everyone from Swedish oat-milk company Oatly Group to bootmaker Dr Martens sold shares this year. Still, tech accounts for a big chunk of the deals. Didi Global will rank among the biggest United States IPOs of the past decade, if the Chinese ride-hailing giant carries through with plans to sell as much as US$4 billion in stock.
"The markets from New York to Hong Kong were on fire in the first half of this year and have left even the late 90s dotcom boom era in the rear-view mirror," said Mr Aaron Arth, head of the financing group at Goldman Sachs in Asia ex-Japan.
The boom has been fuelled by a torrent of cash that central banks have pumped into the economy and the rise of individual investors, who are eager to buy a piece of their favourite companies.
It has delivered a windfall for investment banks around the world, who reap the rewards from underwriting and advisory fees. Citigroup and Goldman Sachs are leading the global league tables for IPOs this year.
With so many companies rushing to market, the industry is starting to look saturated. Investors say they can afford to be picky and are increasingly reluctant to pay steep valuations demanded by the fast-growing companies that populate the IPO market.
As a result, a number of high-profile stocks have stumbled in their trading debuts this year and some companies are getting spooked. Food-delivery start-up Deliveroo plunged 26 per cent on its first day of trading in London, while Oscar Health, the insurance start-up co-founded by Mr Josh Kushner, has fallen 40 per cent since joining the New York market.
Russia's Nord Gold last Tuesday (June 22) pulled its IPO, citing market uncertainty and swings in the gold price, while Genworth Financial last month postponed a US offering for its Enact Holdings mortgage-insurance unit. And last Friday, Hong Kong-traded Geely Automobile Holdings withdrew its application for a listing in Shanghai.
"There has been a certain level of exhaustion among investors and increased selectivity," said Mr Saadi Soudavar, co-head of equity capital markets for Europe, the Middle East and Africa at Deutsche Bank. "It's a record year after all, so they can have their pick among the multiple transactions coming their way."
Investor appetite for one type of listing has already faded. Spacs accounted for almost half the proceeds raised in the IPO market in the first quarter, but their share shrunk to about 13 per cent this quarter.
An index that tracks Spac listings has dropped 23 per cent from a February high. The poor performance, along with tougher regulatory scrutiny has been a blow to market sentiment. US officials have cautioned individual investors against celebrity-endorsed cash shells and are scrutinising accounting practices.
Still, as long as the stock market is rising, the flow of IPOs is unlikely to dry up, and total proceeds this year are on track to eclipse the record of US$420.1 billion set in 2007. The IPO boom will likely continue for the next six to 12 months, said Mr Rob Leach, European head of equity capital markets at Jefferies Financial Group.
Trading app Robinhood Markets has a US offering in the works, while cloud-storage company OVHcloud plans to list in France and Volvo Cars is considering an IPO in Sweden.
"There is a degree of uncertainty about how long the party will keep going, but we expect to see a very busy third-quarter," with a big pipeline of companies lining up to list after the summer, said Deutsche Bank's Mr Soudavar.