Bankers have had a bumper year helping companies raise capital. Stock market listings, the most public sign, harvested over $300 billion in 2021 in the United States, nearly doubling the record set in 2020. Examined closely, it still isn’t as bubbly as 1999-2000. But the performance of newly public shares points to a slowdown.
Blank-check fever early in the year jump-started more than 600 deals that raised $162 billion, according to Dealogic. For the first time, so-called special purpose acquisition companies (SPACs) eclipsed the annual proceeds from traditional initial public offerings, which totaled $154 billion for just under 400 companies.
The largest deal came late in the year, with early-stage electric-vehicle maker Rivian Automotive (RIVN) raising $12 billion in fresh cash in November and driving upward to a peak valuation above $100 billion.
One sign of a hyped-up market is how much stocks rise on their debut from the IPO price set by underwriters. Back in 1999 and 2000, the average new listing popped more than 50% on Day 1. In 2021, excluding blank-check companies, that figure was a bit over 30%, according to Dealogic.
That’s a lot more than is typical, but not as bubbly as the dot-com era. Moreover, adjusted for the total market value of U.S. stocks, IPO activity in 2021 looks less extreme. Excluding SPACs, new listings equated to under 0.3% of total market capitalization, based on calculations using data from Dealogic and Siblis Research. That’s not crazily above the average of just over 0.2% for 2001 to 2020. Adding acquisition vehicles puts that figure nearer 0.6%, more stretched but still shy of the dot-com era.
With the pace of SPAC activity far lower going into 2022, that channel is unlikely to yield as much business in 2021. Meanwhile, the pumped-up market for traditional IPOs may also have a slow puncture. For one thing, investors’ willingness to accept valuations derived from unprofitable, untested companies’ forecast sales is likely to result in disappointment.
And there’s another factor that may make 2022 a tougher sell for bankers: the performance of 2021’s IPO stocks. On average, companies with real operations rather than just piles of cash that went public during the year are down 9% from their offering prices through December 23, per Dealogic, making those first-day gains look like a mirage.
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