The 2021 stock market is quietly breaking a record in this specific category
VSThe companies are poised to raise more money in 2021 through initial public offerings (Initial Public Offering) and ad hoc acquisition company (after-sales service) mergers than in any other year. There is simply a lot of excitement for newly listed companies, and companies are cashing in.
In this video from Go behind the scenes of Motley Fool, recorded on October 25, goofy contributor Danny Vena reviews the IPO and SPAC issues with fellow contributors Travis Hoium and Jon Quast. All three agree that in this market, it’s more important than ever to understand the companies you’re investing in.
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Danny Vena: With that, let’s just start here. I wanted to start by sharing some data that has to do with what’s going on in the IPO space right now. In this case, as of September 19, we had 19 companies so far this year that had raised over $1 billion each on the Nasdaq stock exchange and the New York Stock Exchange. Now, to put that into context, at this time last year, we only had 15 companies that had reached that same milestone.
Now, so far in 2021, and this is IPOs only, does not include SPACs. IPOs in the United States raised more than $98 billion, compared to just under $70 billion at the same time last year. Now, the record for all of last year was $102.5 billion in equity raised from IPOs, and now that we’re a month past that, I think we’ve probably already passed that record. I think this is another banner year for IPOs.
Last year was a record. This year is a record. Is it crazy what happens in the IPO market? If you look back towards the end of last year, we had half a dozen companies that had more than double their share price on the day of the IPO. In many cases, these were companies that had already released their initial range, adjusted their range at which they were going to price the stock, and then finally set it above the range.
There’s a lot of excitement in stocks and in IPOs right now. But it also comes as a cautionary tale, because even more than we’ve seen previously, many IPOs soar on day one. But then you get in a few weeks or a few months and they lose half or three quarters of their value, so just something to watch out for.
Does anyone want to comment on this?
Travis Houm: Yeah sorry I wanted to add about SPACs because that’s another thing that since the SPAC craze is still relatively young I think investors really need to keep an eye out for the details of these SPAC companies that become public, and I’ll talk a bit about it with Wynn Interactive [Austerlitz Acquisition Corporation (NYSE: AUS)]. But the details around that $10 price tag, what the redemption rules are, what happens after the company completes its SPAC, and what the future holds for the company. Because at the end of the day, whether you’re buying an IPO or a SPAC, you’re buying the underlying company, and so we want to make sure that, as strong investors, that can be both a benefit and an inconvenience for those of us buying in public markets. Just something to keep in mind.
Vein: Absolutely right.
Jon, your thoughts?
Jon Quast: Well, just the stats that you shared, Danny, are really mind-blowing because in a lot of ways 2020 felt crazier to me, and I know that’s anecdotal, but just the number of companies that were getting public in the ratings they came to public at, 2020 has felt a lot more heated than 2021 so far. But as the stats you shared confirm, it’s actually an even warmer year than last.
I think the cautionary tale we’re mentioning here is that it’s easy money for businesses right now in a lot of ways. It brings good companies to market. It also brings bad companies [laughs] in the market because they see the opportunity.
Hoium: I just want to add to what Jon just said about easy money. I just looked on Crunchbase. This week – and I had to skim through it to make sure it’s correct – Crunchbase reports that it’s mostly in private markets, so it’s picking up a lot of VC funding. There have been 601 rounds of funding and total funding of $20.6 billion.
There’s money flowing everywhere, whether it’s SPAC or IPOs, or in private markets through venture capital, acquisitions of more established companies, the tide raises all boats, whether or not it’s good for a given business in the long run is perhaps a bit of a different story.
Vein: I think it’s really interesting that if you go back to the beginning of this year, after the frenzy that we saw late last year with SPACs, when the news broke that the SEC was looking into this, and that they were going to issue regulations, all of a sudden everyone backtracked on these SPAC acquisitions for several months.
What actually happened was that the SEC said, “We’re going to put rules in place regarding these warrants that are issued with SPACs.” Then shortly after, it all started again. It was really interesting to see that ratchet come back so quickly. Then just that break and then it all starts again, and we’re still looking at a banner year for SPACs as well.
Danny Vena has no position in the stocks mentioned. Jon Quast owns Nasdaq shares. Travis Hoium has no position in the stocks mentioned. The Motley Fool recommends the Nasdaq. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.