IPO & SPAC Frenzy Continues

The IPO and SPAC frenzy that we saw in 2020 is keeping its pace in 2021.

According to Bloomberg, companies raised 63 billion globally from initial public offerings (IPOs) in January, more than five times the amount from the same period of 2020.

From this total, about $26 billion were raised by SPACs, surpassing the previous monthly record set in October.

SPAC is the acronym for Special Purpose Acquisition Company, also known as “blank check companies.”

A SPAC is created with the specific purpose to raise money through an IPO (initial public offering) to acquire private companies that will eventually go public.

SPACs typically have two years to invest the money; otherwise, they return the principal raised in the IPOs to the investors.

One example: this Thursday (February 4) we learned that the genetics testing and genome research company 23andMe is set to go public via a merger with the SPAC VG Acquisition, founded by the British billionaire Richard Branson. The agreement values the Silicon Valley firm at $3.5 billion.

The strong demand is helping many companies raise more than analysts were initially expecting in their IPOs. The five biggest offerings in the U.S. market in January raised more than the companies targeted.

Affirm, for instance, initially set a target price range of between $33 and $38 per share, and raised it later to a range of $41 to $44 per share. 

The price ended up above it, at $49 per share, giving the company an $11.9 billion valuation based on common stock outstanding and around a $15 billion valuation on a fully-diluted basis.

According to data from Pitchbook, it’s five times the valuation of about $3 billion at the time of Affirm’s prior private fundraiser in April 2019.

In its first day trading (January 13), the stock from the online lender created by PayPal co-founder Max Levchin almost doubled. It closed at $97.24 a share. This Thursday, it ended the day at $108.77.

So far, Nasdaq is leading the debuts in the financial markets, according to Reuters. In January it hosted 167 issues raising $41.12 billion, followed by NYSE and the Hong Kong Exchange, with both raising over $18 billion each.

The numbers are much smaller in Europe. London and Frankfurt, two of the most important financial markets in the region, raised $4.29 billion and $1.72 billion respectively.

Some of the hottest IPOs expected for this year are from dating app Bumble, the crypto exchange Coinbase, the grocery delivery franchise Instacart, the social network Nextdoor, and the trading app Robinhood, which recently was in center of the controversy about the short-squeeze trend.