• Market Crumbs

IPO Market Heats Up

Image via Sophie Backes on Unsplash

While merging with a special purpose acquisition company, or SPAC, to go public is increasingly popular lately, the market for initial public offerings, or IPOs, is showing signs of strength as well.

According to Refinitiv data, there were 17 filings of registration statements to go public last week, marking the highest level over the last five years. For the year, U.S. companies have now raised more than $70 billion, already outpacing 2019's total of $62.5 billion. 2020 is on pace to be the best year for IPOs since 2014 and second-best since 2000.

"September, October is normally the busiest time of year for IPOs but I think the market is going to make history with the breadth of activity we'll have this year," Bank of America head of equity capital markets for the Americas Jim Cooney said. "There's an exuberance throughout the IPO market that has resulted in investors being rewarded for participating and issuers being rewarded for fast-forwarding their IPO timelines."

While SPACs seemingly get all of the attention lately, the traditional IPO still accounts for the bulk of the $115.9 billion raised globally this year, according to Refinitiv. 67 SPAC offerings globally have raised a record $23.9 billion this year with 61 of them coming from the U.S.

In an effort to keep up with companies choosing alternatives to an IPO, the New York Stock Exchange won approval from the Securities and Exchange Commission last week for a new type of direct listing. The approval allows companies to directly list and raise money from public investors, which is an improvement from the previous direct listing method which allowed only existing private shareholders to sell stock to public investors.

Nasdaq filed a similar request with the SEC just days before the NYSE received its approval.

"What we're trying to do is provide optionality and flexibility," Nasdaq head of capital markets Jay Heller said. "Whether or not people start pounding on the door to start raising capital through direct listings is still to be determined"

Bill Gurley, Benchmark general partner and one of the biggest critics of IPOs, cheered the decision.

"This is really big," Gurley tweeted. "We could get to a modern approach where Silicon Valley companies, founders, employees, and investors don't have a 40% costs of capital to enter the public markets."

With exchanges trying to think outside of the box as the traditional IPO continues to be threatened, the numbers so far this year are proof if the IPO is dead, at least it's a long way off.

Leftover Crumbs

  • Markets close strong August. Markets finished the month on a high note, fueled by excitement over the stock splits of Apple and Tesla, which took effect yesterday. The Dow Jones Industrial Average rose 7.6% for the month, marking the best August since 1984. The S&P 500 rose 7% in August, finishing off the best performance for the month since 1986 and rising for the fifth-consecutive month. In the 26 prior instances since 1950, the S&P 500 resulted in a gain a year later 96% of the time, according to Suntrust/Truist Advisory. The Nasdaq Composite also notched its fifth-consecutive monthly gain as it had its best month since 2000.

  • Amazon wins FAA approval. Amazon has received approval from the U.S. Federal Aviation Administration for its its fleet of Prime Air delivery drones. The approval gives Amazon the right to "safely and efficiently deliver packages to customers." With the approval, Amazon said it will now begin testing delivering packages to customers using the drone fleet. "This certification is an important step forward for Prime Air and indicates the FAA's confidence in Amazon's operating and safety procedures for an autonomous drone delivery service that will one day deliver packages to our customers around the world," Amazon vice president of Prime Air David Carbon said.

  • Nestle bets on peanut allergy treatment. Nestle will pay $2 billion for full ownership of peanut allergy treatment maker Aimmune Therapeutics. The deal expands Nestle Health Science, which the company set up in 2011 to venture into the business of food and pharma. Nestle has been working with Aimmune Therapeutics since 2016 and held a 25.6% stake before the deal. Nestle estimates as many as 240 million people worldwide have food allergies, with peanut allergy being the most common.

  • McDonald's slams former CEO. After Former McDonald's CEO Steve Easterbrook asked a judge to dismiss the case against him by McDonald's, the company said in a filing that he should have to defend his conduct in court. "When McDonald’s investigated, Steve Easterbrook lied. He violated the Company's policies, disrespected its values, and abused the trust of his co-workers, the Board, our franchisees, and our shareholders," McDonald's told CNBC. "His argument that he should not be held responsible for even repeated bad acts is morally bankrupt and fails under the law."

  • Novavax strikes deal with Canada. Novavax has agreed to supply Canada with 76 million doses of its experimental coronavirus vaccine, which is currently in phase two trials. The agreement is contingent on the vaccine getting a license from Health Canada while doses could be supplied as early as the second quarter of next year. "We are moving forward with clinical development of NVX-CoV2373 with a strong sense of urgency in our quest to deliver a vaccine to protect the world," Novavax CEO Stanley Erck said.