- The momentum from 2020 may continue through summer 2021
- Despite the Covid-19 pandemic, the amount of money raised by new issues last year was the highest it has been since 2010
- IPOs were especially in demand in the US and China – Europe caught up somewhat in the fourth quarter of 2020
- Five Swiss companies went public in 2020, with three of them doing so abroad
A strong fourth quarter helped the international IPO market reach a new high for 2020 as a whole. Worldwide, a total of 1,322 companies went public last year, 15 percent more than in 2019. The total issue volume of global IPOs rose by 26 percent to USD 263 billion, the highest amount since 2010.
The increase in issue volume was especially strong in the US, at USD 86 billion (69 percent higher than 2019). The number of new issues climbed by 32 percent to 222. China (including Hong Kong) also saw growth in 2020 in terms of both issue volume (by 51 percent to USD 116 billion) and the number of IPOs (by 41 percent to 514).
The growth in Europe was relatively modest, with USD 27 billion in issues (an increase of nine percent compared to 2019) and 176 IPOs (17 percent more).
Popular technology and health care companies
The current IPO Barometer of auditing and consulting firm EY shows that in 2020, 35 percent of the proceeds from IPOs worldwide went to tech companies, which made up 24 percent of all deals. Coming in second were the IPOs of companies in the health care sector (16 percent of proceeds, 15 percent of transactions). The world’s largest IPO transaction in 2020 was the public listing of Chinese chip manufacturer Semiconductor Manufacturing International, which yielded USD 7.5 billion.
Tobias Meyer, Head of Transaction Accounting and IPO Services at EY Switzerland notes: “At first glance, it seems paradoxical for IPOs to be booming in a year as difficult as 2020. However, many IPOs continue to be driven by the large amount of liquidity in the market that needs to be invested. In addition, it is once again clear that the market for IPOs says little about the present and more about the future.”
Tobias Meyer adds that the Covid-19 pandemic has also changed the approach that companies take when it comes to an IPO. For example, the process of placing shares during the IPO process has become more digital and leaner thanks to virtual roadshows. At the same time, these roadshows were also shorter, which has reduced the volatility and price risk.
Listed shell companies in greater demand than ever
So-called SPAC (“special purpose acquisition companies”, i.e. exchange-listed shell companies) broke through last year. After 60 such SPACs were listed 2019, generating a total of USD 13.7 billion in proceeds, the number of new SPAC listings rose considerably to 230 in 2020, with a total issue volume of USD 75.8 billion.
“Affiliating with a SPAC is now one of the best options for IPO candidates looking for the most secure and predictable path to a listing in uncertain times. To date, most such transactions have taken place in the US, but since 2020 an increasing number are occurring in Europe as well,” notes EY’s Tobias Meyer.
2020: Five IPOs of Swiss companies
Swiss textile company HeiQ chose an affiliation with such a shell company specially created and listed for this purpose when it went public on the London Stock Exchange (LSE) at the end of 2020. Two other Swiss companies also opted for a foreign listing last year: biotech company ADC Therapeutics chose US technology exchange NASDAQ for its IPO, while medtech company Implantica listed on NASDAQ’s Swedish subsidiary in Stockholm.
There were two IPO transactions on the Swiss exchange (SIX) in 2020, both of which involved spin-offs of business units into independent exchange-listed companies. One of these involved real estate development company Ina Invest, which was spun off from construction company Implenia. The other was V-Zug, the manufacturer of household appliances, which was formerly part of industrial group Metall Zug.
Says EY’s IPO expert Tobias Meyer: “Switzerland is a small IPO market by international standards, so there aren’t as many new issues as there are in other countries. For this reason, the number of IPOs can fluctuate substantially from year to year. For example, there were seven IPOs of Swiss and foreign companies in 2019 compared with just two this year.”
More IPO activity expected in 2021
According to EY Switzerland’s Tobias Meyer, further listings of technology and health care companies are expected next year because of the Covid-19 pandemic. However, investors may also focus increasingly on the renewable energies sector (electric vehicles, energy, cleantech) and education technology.
“On the whole, global IPO activity will likely maintain its momentum into summer 2021, as companies will benefit from the continuing high level of liquidity and the news related to the coronavirus vaccine. In addition, some companies are generally ready for an IPO, but they temporarily put off doing so in 2020 because of the pandemic,” says Tobias Meyer.
However, IPO candidates should be aware of a potential market correction. Particularly in the third and fourth quarters of 2020, there were a number of market darlings on the global IPO market whose shares listed at the upper end of their valuation. These shares are now more susceptible to a potential correction because of market turbulence. Furthermore, there continues to be uncertainty regarding the effectiveness of the vaccine in preventing the further spread of the pandemic, which is crucial for a recovery of the entire global economy. And geopolitical developments may also create uncertainty and volatility on the markets in 2021 as well.
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