Equity issuance experienced an exceptional year in 2020. As non-traditional IPO methods such as SPACs and Direct Listings continue to grow in popularity, Kristin DeClark (Co-Head of ECM Americas) discusses how companies are embracing alternative methods of going public - partly driven by responses to the pandemic. Kristin covers three trends that could continue to have a big impact on the market in 2021.
Perspective 1: SPACs are here to stay
2020 was a year of record equity capital markets issuance across IPOs, follow-ons and convertibles with over $1 trillion raised. The biggest change that we saw in the equity capital markets is probably the increase in SPACs as a mechanism for companies to go public. SPACs raised $83 billion in capital in 2020 globally, mostly in the US market, and represented over half of the US IPO volume.
SPACs are an interesting alternative for companies as a mechanism of going public, particularly if you're looking to raise outsized proceeds because you have the capital from the front end of the SPAC, plus the attached PIPE.
The other benefit of a SPAC is for companies at an early stage in their growth trajectory because you can include financial projections in the proxy statement.
The recent boom in SPAC activity may not be fully sustainable, but it's a product that's here to stay, and will continue to gain traction globally, especially in jurisdictions, like the UK, if regulation changes.
Perspective 2: The rise of direct listings
Another big change in the IPO market has been the rise of direct listings. While direct listings still represent a relatively small percentage of companies coming public, it's an interesting alternative for companies looking to avoid the IPO pop.
A direct listing makes most sense for companies that have a strong institutional crossover shareholder base and are generating cashflow or have no need for additional primary capital at the time of the IPO.
That being said, the recent SEC approval to allow for capital raising at the time of a direct listing could open it up as an alternative for more companies.
Perspective 3: The pandemic’s lasting impact on the IPO process
Another innovation in the IPO market has been the move to virtual roadshows. It happened out of necessity because of the pandemic, but we believe it's something that will persist going forward. It allows for companies to meet with a wider array of institutional investors geographically, and also, improve the efficiency for the management team and shortens the length of the roadshow.
Post-pandemic, we will return to some in-person meetings, but virtual meetings will persist as a meaningful part of the IPO process.
The biggest shift that we've seen in the IPO market has really been investors' willingness to accept innovative mechanisms of going public, and it's something that opens up the market to more issuers and has led to already a busy calendar in 2021.