Guntars Krols: Companies are rushing to take advantage of favorable conditions in IPO transaction markets

In the second quarter of this year, the pace of IPOs or initial public offerings continued earlier in the year, surpassing last year’s first-half results by three times the amount of IPO funding ($ 222 billion in the first six months of this year. In the first half) and more of double the number of transactions. Namely, in the first half of this year there were 1,070 IPO transactions in the world, compared to 428 in the comparable period last year. The second quarter was the busiest and most profitable second quarter in the world of IPOs in the last 20 years.

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This year’s particularly successful results can be explained mostly by the fact that companies that have prepared for the public offering of their capital are now trying to take advantage of favorable market conditions – optimistic investor mood earlier this year and high market liquidity. the amount of relatively cheap financing in search of potentially lucrative offers. It is possible that companies that are ready for an IPO tried not to miss their opportunity.

Technology companies attract by far the largest share of IPO financing: in the first half of this year, 41% of all IPO investments went directly to the technology industry, and all three of the world’s largest IPOs this year were in technology (Kuaishou Technology, 6, $ 2 billion). Coupang, Inc. 4.6 billion and DiDi Global Inc. 4.4 billion). However, other sectors are also attracting sufficient investor interest, especially the health and industrial sectors. I think that in the near future we will also see more and more activities in the field of energy, especially renewable energy.

It could often be heard that the special threshold for IPO transactions is an estimate of a billion dollars, which gives the company the symbolic name “unicorn”. It is true that in the IPO market these transactions trigger market activities, but it should be emphasized that a firm does not necessarily have to have a billionth estimate to enter the capital market. For example, in the second quarter of this year, there were only 21 IPO transactions in the world worth more than $ 1 billion (22 such transactions in the first quarter of the year). However, these 21 transactions attracted 33% of all IPO investments made in the second quarter.

In the first half of the year, the largest IPO traded on the stock exchange was the London Stock Exchange with $ 12.7 billion in investments in 42 initial offer transactions, followed by the German Deutsche Börse with $ 9.6 billion in 11 IPOs and the Netherlands, France and Belgium, Euronext and Alternext with $ 9.1 billion in financing in 19 IPO transactions. It should be noted that given the number of transactions in Europe, the Oslo Stock Exchange also plays an important role, having only 46 transactions in the first six months of this year.

The biggest IPO deal in Europe this year remains the company’s initial offer for packages and delivery to InPost SA in January this year, which attracted $ 3.9 billion in capital. This is followed by a $ 2.6 billion contract with telecommunications company Vantage Towers AG in March and an $ 2.6 billion IPO investment by Allfunds Group plc in April.

It should be noted that in the second quarter of this year there was a “SPAC” (Special Purpose Acquisition Company) or a decline in the popularity of companies specifically for acquiring companies. The use of SPAC in an IPO transaction takes place by creating a special company that attracts investments through an IPO transaction, and then for those investments it acquires a company that was not listed. In the second quarter of this year, 74 such SPAC IPO transactions were executed worldwide, which is significantly less than 305 transactions in the first quarter of this year. It is possible that the decline in SPAC transactions can be explained by the greater interest of supervisors in this type of new transactions, as well as the attitude of waiting investors who pause to assess the performance of previous SPAC transactions.

Looking ahead, IPO activity is expected to remain strong in the next quarter, and many companies will rush to take advantage of this favorable “window of opportunity” in the IPO market.

For those considering offering their capital in the international public market in the short to medium term, I would recommend assessing the resilience of my business story and business model to the following factors, namely how my company fits into post-pandemic or geopolitical economic recovery (such as trade policy), can my company be affected by new regulatory requirements (such as environmental protection)? Also, a new factor in the global economy is inflation and its expectations – how can this affect a company’s growth with changing price levels? At the same time, it is necessary to monitor indicators of liquidity and volatility of the financial market, because changes in the availability of financial resources can have a significant impact on even the best success story of a company’s IPO.

It is also already clear that no significant financial transaction takes place without an assessment of the ESG or the environmental sustainability, social and management dimensions – this certainly applies to IPO candidates in Latvia. The ESG dimension is not just a matter of social values: in the financial environment it becomes a requirement for investment by various investment funds, banks and other market participants. Accordingly, in addition to “talking” to ESG, the company significantly narrows the market in which it can offer its capital. This in turn will inevitably reduce the market value of the company.

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