Analysis: U.S. IPO market faces first big test of 2021

Playtika Holding

11/01/2021 18:24

By Chibuike Oguh and Joshua Franklin
    Jan 11 (Reuters) - At least eight businesses are set to
price initial public offerings (IPOs) in New York in the next
three days, seeking to raise a total of nearly $5 billion in
what could be the biggest week for new listings in more than
five years. 
    The companies are seeking to capitalize on what has been the
strongest IPO market in two decades. Some $83 billion was raised
across 203 IPOs in 2020, excluding listings of special purpose
acquisition vehicles (SPACs), on U.S. stock exchanges, according
to Refinitiv data. 
    This was the most since 2000, as firms such as home-rental
company Airbnb Inc  ABNB.O , food delivery startup DoorDash Inc
 DASH.N  and data warehouse firm Snowflake Inc  SNOW.N 
capitalized on the stock market recovery in the aftermath of the
COVID-19 pandemic. 
    Financial technology startup Affirm Holdings Inc  AFRM.O ,
mobile gaming firm Playtika Holding Corp  PLTK.O , pet retailer
Petco Health  WOOF.O  and online fashion marketplace Poshmark
Inc  POSH.O  are among those aiming to price IPOs this week.
    Other high-profile listings expected in the coming months
include supermarket chain Winn-Dixie operator Southeastern
Grocers Inc  SEGR.N , gaming site Roblox Corp  RBLX.N  and
grocery delivery app Instacart.
    "It's almost like we didn't miss a beat here after a record
2020. This week is the start of what we expect to be a very busy
January," said Eddie Molloy, co-head of equity capital markets
in the Americas at Morgan Stanley  MS.N . 
    IPO hopefuls have had a solid start in 2021. Biotechnology
companies Cullinan Oncology LLC  CGEM.O  and Gracell
Biotechnologies  GRCL.O , priced IPOs last week higher than
targeted, their shares closing up on their first day of trading.
On Monday, Affirm increased the target selling price for its
shares because of the strong investor demand.  urn:newsml:reuters.com:*:nL4N2JM2MH
    With the stock market posting new all-time highs, concerns
are rising about listings overheating. Companies priced their
U.S. IPOs at a median price-to-sales ratio of 38.5 in 2020, the
highest since the dotcom era of 2000, according to data complied
by Jay Ritter, an IPO expert and professor at the University of
Florida.
    Some investment bankers said it was hard to predict if there
is an IPO bubble, noting that low interest rates have made
investors more willing to bet on riskier stocks.
    "We are very much in a risk-on environment and this is when
IPOs shine. We don't know how long this continues, but while it
does companies will keep coming to market," said David Hermer,
Credit Suisse Group AG's  CSGN.S  head of global equity and debt
capital markets. 
    
    DIRECT LISTINGS, SPACS
    Dealmakers expect more companies to go public through a
direct listing instead of a traditional IPO this year, after
four companies, including data analytics firm Palantir
Technologies  PLTR.N  and workplace app Asana Inc  ASAN.N ,
picked this route last year, up from two in 2019.
    Direct listings let companies sell shares directly to
investors without paying for underwriters. Unlike IPOs, they do
not allow companies to raise capital, though the U.S. Securities
and Exchange Commission last month greenlighted a process by the
New York Stock Exchange that enables companies to raise money in
a direct listing. This process has yet to be tested. 
    "The idea that we see another round of direct listings this
year that doubles the four we have had so far again is inside
the scope of possibility," said Andrew Wetenhall, co-head of
equity capital markets in the Americas at Morgan Stanley. 
    SPACs, also known as blank-check acquisition companies, kept
raising funds from investors at a strong pace after bringing in
a record $83.4 billion through IPOs last year, according to SPAC
Research. 
    Their popularity was fueled by the success of some SPAC
mergers in late 2019 and early 2020, such as space tourism
company Virgin Galactic Holdings  SPCE.N , sports betting
platform DraftKings Inc  DKNG.O  and battery-maker Quantumscape
Corp  QS.N . 
    In the first week of 2021, a record 28 SPACs raised over $6
billion to invest in private companies to take public, according
to IPO research firm Renaissance Capital.
    "The SPAC boom will have a greater impact than in 2021 than
last year," said Matthew Kennedy, a senior strategist at
Renaissance Capital.
    "They've raised a lot money in the past months and we start
the year with hundreds of blank checks looking to take companies
public," Kennedy added.

 (Reporting by Chibuike Oguh in New York and Joshua Franklin in
Miami; Editing by David Gregorio)
 ((Chibuike.Oguh@thomsonreuters.com; +332-219-1834; Reuters
Messaging: chibuike.oguh.thomsonreuters.com@reuters.net))