A Look Back at 2021: The Year of the IPO
Many financial records were broken in 2021, but for companies looking to cash in, one statistic stands out the most: The number of IPOs in 2021 reached 2,388, raising a grand total of $453.3 billion, according to an EY report.
Here are some more statistics for these eye-popping numbers in order to put it into perspective:
The 2,388 total number of IPOs equals a 64% increase in deals YOY.
The $453.3 billion is good for a 67% increase in revenue raised YOY.
China was the country with the most total IPOs with 593.
Europe’s stock exchanges more than doubled their number of IPOs, from 191 last year to 485. In addition, issue volume almost tripled!
Tech companies continued to dominate as they made up 1 in 4 IPOs worldwide and were 33% of the aggregate issue volume.
All in all, 2021 was the most active year for IPOs in the past 2 decades.
Every single global region experienced significant growth, however, 2022 comes with mixed estimates in the field of IPOs. Many experts predict a continuation to the strong year, while others predict a large dropoff. Here is why it is important to be aware of both potential situations and how it can affect finance teams in general, and companies looking to join the 2022 IPO list in particular.
The case for continued IPO success
The promising statistics from 2021 are expected to keep the wave of IPOs going. “The relatively high valuations and market liquidity are for now keeping the IPO window open in 2022,” said the EY survey report.
In addition, 2022 will provide a platform for the continued dominance of technology and healthcare IPOs, which have surged during the pandemic for obvious reasons.
Lastly, the ups and downs of the past 2 years provide an opportunity for potential in other sectors. Consumer, retail, and financials have all been redefined, and therefore the opportunities are endless for those looking to upgrade these sectors.
The overall huge increase in startups, fiscal stimulus, record low interest rates, and the fact that individuals and companies alike are looking for a place to invest their money due to high inflation, are creating strong tailwinds. Investors and businesses are looking forward to building on the continued success of the 2021 IPOs, and highly anticipated IPOs such as Reddit and Instacart will lead the way.
The reason for a 2022 slowdown
The bearish concern for 2022 started in the IPO slowdown of the 4th quarter. After breaking records left and right, some flaws and concerns started to emerge.
To begin with, geopolitical problems keep popping up and affect the growth of the global IPO market. Brexit is one example which complicated investments and mergers, and the fear of Covid-19 travel bans and other shortages and laws have also hampered growth in certain fields. To top it all off, the trade relations between 2 superpowers, China and the US, are as complicated as ever. China tightened its overseas review requirements and the US updated its SEC inspection rules, resulting in several Chinese mega-IPOs delaying or canceling their IPO status.
Another big risk to the continued success of IPOs is the pandemic. New variants and laws can easily set companies back and cause them to lose value overnight. The volatility can also scare off investors, creating a bullish mentality that many are afraid of.
Lastly, if not most importantly, is the decline in the SPAC boom. SPACs absolutely exploded in 2021, but there was a clear decline in the 2nd half, thanks to poor showings from some high profile companies.
SPACs are oftentimes evaluated at an extremely high price due to their potential. The investors and the companies are looking for big and fast returns, and when the young companies (who are under a lot of scrutiny) post their first quarter earnings, many investors run for the exits. Investors and businesses alike are being more cautious when it comes to going down the SPAC path, and many experts believe that 2022 will create less of them, continuing the trend from the later part of 2021.
Companies who are thinking about going public need to keep a few things in mind for 2022:
As mentioned above, SPACs have come under a lot of scrutiny over the past few years, and the public is being more cautious about overhyped SPAC mergers. High profile SPACs such as Momentus and MetroMile have shown investors that inflated companies with minimal revenue may not be the best investments.
A number of studies have proven that SPACs have created double-digit losses for most investors over time. After peaking in February of 2021, SPAC stocks are down more than 20 percent over the entire year, according to multiple indices and ETFs tracking them.
In fact, many are calling this phenomenon “the rise and fall of SPACs”. While SPACs can be a great way to break into the public in a quicker period of time, executives need to understand that investors may be more cautious in 2022.
When taking the IPO route, chances are that this plan has been in the making for a while. Rushing into it is never a good idea, as public companies constantly face more stringent laws and regulations in regards to reporting and oversight.
The finance function is usually very good for a private company, being that it got this far, but it often lacks the stronger technical accounting knowledge and experience necessary for a public company. Adding departments like internal audit, governance, and risk and control should be done in plenty of time in advance of the IPO status.
In addition, hiring internal and external help, especially for the finance team, is almost always a necessity in the months leading up to going public. In addition to the day-to-day finance aspects, a whole host of data needs to be regulated or polished up for public scrutiny.
One way to improve the workload is by implementing financial automation software which will consolidate the company’s previous financial data into one source. This will not only help the company be more organized and efficient but it will also help free up time for finance professionals to work on analysis instead of being overwhelmed with manual inputs.
Whether your company is looking to go public in 2022 or invest funds in other IPOs or SPACs it is important to understand the previous trends and how they affect the market. Taking the appropriate steps, and not rushing into it will give the company the best chance for long term success.