Experts say the Federal Reserve’s decision to keep interest rates at zero for the foreseeable future has helped fuel demand for IPOs while boosting the overall stock market and high growth techs in particular.
“IPOs are doing well and I guess that’s what happens when you have the Fed pumping money into the financial system,” said Troy Hooper, head of IPO content at Mergermarket. “The money has to go somewhere.”
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Window for IPOs could soon shut
The Securities and Exchange Commission is also weighing whether to approve a new rule that will allow companies to also raise new money by directly listing their stocks. More companies could go public via direct listings if they are allowed to list shares and generate cash at the same time.
“It will be interesting to see what happens with Palantir and Asana. There is increased interest from wealth managers in tech unicorns after Snowflake,” said Phil Haslett, co founder and chief revenue officer with EquityZen, a company that lets investors buy pre-IPO shares of private companies.
“The window to go public will probably close by mid to late October. Listings may stop after that,” Haslett said. “There are a lot of risks for companies waiting to go public next year. There is still dry powder to raise money in the private market but the valuations may be lower.”
Blank check deals will continue to be popular, particularly because they don’t take as long to complete as an IPO or direct listing.
There already have been nearly 100 SPAC deals so far in 2020 that have raised a total of $35 billion, according to Evan Ratner, managing director and portfolio manager of SPAC strategies at Levin Easterly Partners. That’s up from just 59 SPAC transactions raising $13 billion for all of last year.
“With a SPAC, a private company can go one-to-one to another company looking to take it public,” Ratner said. “It’s all about credibility and maximizing value. If you are a company with real funding needs and have a good brand, a SPAC could make sense.”
Now or never?
Companies that are planning public offerings seem to recognize this as well. And there’s a newfound sense of urgency.
Thomas Healy, CEO of Hyliion, said his company, which makes commercial electric trucks, considered staying private. But ultimately, he felt now is the time to go public.
“What excited us was the ability to bring in more money. That will help us grow the company,” Healy said.
But the traditional IPO isn’t dead. Startups want the legitimacy that goes along with being a publicly traded company that’s been vetted by top investment banks.
“We’re definitely seeing animal spirits running rampant. The valuations don’t make sense,” said Max Gokhman, capital markets strategist at Pacific Global Asset Management. “Snowflake is a solid business. But if their wings are made of snow, they are going to melt by flying to close to the sun.”