What are IPOs offering in 2021?

2020 was an unexpectedly big year for IPOs, seeing a 42% increase in capital raised globally compared to 2019. Funding raised through domestic listings rose 118% in the US and 77% in China, while listing volumes increased 93% and 81% respectively in 2020, Baker McKenzie data shows. Cross-border listings also rose, with the top 10 cross-border IPOs all from Mainland Chinese issuers choosing Hong Kong, for the most part, as their preferred listing venue.

In terms of proceeds, 2020’s largest deal was Semiconductor Manufacturing International Corporation [SMIC] which raised nearly $8bn. Snowflake [SNOW] was the largest IPO outside of China, raising $3.9bn on the NYSE to make it the biggest ever IPO for a software company in the US.

Who’s listing in 2021?

2021 is set to be another eventful year as global economies continue to struggle with the coronavirus pandemic. In the UK, cyber security firm Darktrace is targeting a £3.8bn valuation on the London Stock Exchange. Retailer EG Group, whose owners recently purchased Asda from Walmart, could be on track for a £10bn valuation, despite falling revenues in the second half of 2020. Deliveroo had previously hinted at a 2020 IPO after the collapse of merger discussions with Uber, and a 2021 listing could value the food delivery service at more than £3bn.

Britain’s automotive industry could also see debuts, with McLaren Group and Jaguar Land Rover expecting valuations of £2.4bn and £2bn respectively, although COVID disruption and Brexit could further delay the listing of both companies. Similarly, craft beer brewery BrewDog and Britain’s largest cinema chain Vue International have had their plans to list disrupted. They are estimated to be valued at £1.5bn and £1.6bn respectively, should conditions to list return this year.

Across the pond, on-demand grocery delivery app Instacart saw business explode during the pandemic. It was estimated to have reached 80% of US and 70% of Canadian households, and is expected to list in the first half of 2021 with a market cap of $14bn. Trading app Robinhood is also eyeing a debut, having scaled to 13 million users in 2020 despite having been involved in a $65m settlement over charges of misleading customers about revenues. Nevertheless, a 2021 listing could see Robinhood valued at over $11bn.

TikTok Global’s IPO is set to be one of 2021’s biggest, with a July 2020 valuation putting the video app’s value at $50bn. TikTok is 80% owned by ByteDance, a Chinese startup that may look to list in Hong Kong or Shanghai this year. An estimated market cap of $75bn-$100bn makes this one of the largest IPOs expected globally in 2021.

More of the same?

According to a report by Baker McKenzie, the 2021 IPO outlook will be heavily influenced by the knock-on effects of the pandemic, political events such as Brexit and the incoming administration of US president-elect Joe Biden.

With the approval of the Pfizer [PFE] COVID-19 vaccine, as well as recently approved alternatives like AstraZeneca’s [AZN], there is scope for recovery in the sectors hardest-hit by the pandemic in 2021, such as hospitality, travel and transportation. Life sciences and infrastructure could also be boosted by the drive to roll these vaccines out. Steven Canner, managing partner at Baker McKenzie, expects specialist areas of the technology sector, especially biotech, fintech and edtech to grow as innovation in business operations continues.

Last year saw an increase of around 25% in IPO proceeds on the Hong Kong Stock Exchange from 2019 to 2020, driven predominantly by homecoming listings — secondary listings of US-listed, Chinese-based companies. This trend looks set to continue.

Irene Chu, head of New Economy and Life Sciences and partner at KPMG China, predicts the sophisticated biotech infrastructure in Hong Kong will continue to encourage investment. Regulatory changes affecting the ease of listing for tech and biotech companies as well as revisions on corporate weighted voting rights beneficiaries will make Hong Kong an increasingly attractive option.

Additionally, US president Trump’s recent ban on US investors investing in companies with alleged connections to the Chinese military, followed by the passing of the Holding Foreign Companies Accountable Act (HFCAA), could benefit Hong Kong. According to Shaun Wu of Paul Hastings, the increased scrutiny for US-listed Chinese firms will lead many to list on alternative exchanges, especially Hong Kong, as Alibaba [9988], Yum China [9987], NetEase [9999] and JD.com [9618] have recently done. London’s Shanghai-London Stock Connect offers another non-US route for Mainland Chinese companies to access international investment.

The rise and rise of the SPAC

A focus on environmental, social and governance (ESG) values is likely to be an ever-increasing influence on investment and listings in 2021, with 2020 having seen BlackRock [BLK] CEO Larry Fink announcing his intention to exit investments with poor sustainability credentials. This year could see ESG regulations continue to develop and standardise globally, with ESG factors playing a heightened role in board and investment decision-making.

Another 2020 trend set to continue is the rise of the special-purpose acquisition company (SPAC). Charles Bartoli of Baker McKenzie sees SPACs as a “more streamlined, ‘back-door’ process to an IPO”.

Last year was record-breaking for SPACs, with the $64bn raised through the vehicles in 2020 nearly matching the $67bn raised through traditional IPOs. Their growth is likely to continue thanks to a shift in perception and several advantages they bring including, according to Gil Ottensoser of BTIG, transparency, expertise, forward-looking guidance and easy exits for uninterested investors.

Paul Dellaquila, president and co-founder of the Defiance Next Gen SPAC ETF told CNBC that the profile of SPACs has been raised in recent years by high-profile companies using the model to list. “Companies like Virgin Galactic [SPCE] and DraftKings [DKNG] went public via SPACs, which greatly lifted the profile,” Dellaquila explained.

Sports teams could be next to dip their toes in the SPAC water, with Billy Beane’s RedBird Capital reportedly looking to take a sports team public. As of 7 December, 210 SPACs were looking for acquisitions, with time limits of 18-24 months maximum, so there is every reason to suggest SPAC activity may continue to grow in 2021.