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The IPO market was particularly hot in the first half of 2021 and there is no reason to believe that the momentum can’t continue throughout the bottom half of the year.
IPOs gaining momentum
The first half of 2021 saw multiple “exciting and innovative” companies tap the public market, Peter Giachhi, the head of the DMM floor trading, told CNBC’s Bob Pisani. Giacchi further said he expects more of the same through December — a sentiment Pisani appears to agree with.
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Pisani wrote that 18 companies this week transitioned from private to public, including the biggest IPO deal of the year featuring China’s DiDi Global Inc – ADR (NYSE: DID). This represents the busiest week for IPOs in terms of new issues since 2004.
Part of the surge in IPOs this week can be attributed to companies rushing to list their shares before the start of a new quarter. If these companies waited until next week, they would have had to publish updated financials.
2021 is rivaling 1996-2000
In total, the first half of 2021 featured 213 IPOs and these companies combined to raise more than $70 billion.
In the first half of 2021, there was a record 213 IPOs which raised over $70 billion. Commenting on the number, Renaissance Capital senior market strategist Matt Kennedy told Pisani:
That is above the full-year average for the last 10 years. We haven’t seen this level of activity since the 1996-2000 time frame.
Among the large slew of IPOs, 16 companies raised at least $1 billion and this number should rise to 18 in the coming months. According to Kennedy, this is “far and away” a record setting year for billion-dollar listings.
SPAC deals were a hot commodity in 2020 but the same can’t be said for 2021. According to Pisani, 50 SPACs combined to raise just $9.3 billion in the second quarter of 2021. Put in perspective, this is down 89% from the first quarter of the year.
Investors scored big returns on day one
The average IPO in 2021 returned 26% in the second quarter, but the majority of the gains were earned on the first day of trading, according to data compiled by Renaissance Capital. Kennedy also told Pisani this is “not ideal” for retail investors as institutional investors who bought in prior to the IPO recorded “the majority of the returns.”
Currently, there is a pipeline of around 87 companies seeking to list and raise around $20 billion. In addition, there are several private companies yet to file but will do so soon or gave confidentially filed.
Meanwhile, Renaissance Capital chairwoman Kathleen Smith is raising the alarm bells. She said that the IPO activity is “so great” that clients are “complaining” they don’t have the resources to look at every deal. This is bad because it implies the absense of quality control. She said:
The only quality control is when a fund manager is doing their homework, or some market event happens that causes recent IPOs to drop fast.”
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