Introduction
From Dutch East India company’s IPO to the largest IPO of Rivian, the Global IPO market as a whole has come a long way. There are multiple global IPO trends that are currently shaping it. The world’s IPOs raised $608 billion in 2021 with the technology and consumer sectors topping the list.
“An IPO is like a negotiated transaction- the seller chooses when to come public- and it’s unlikely to be a time that’s favorable to you” – Warren Buffet
As governments across the world announced covid vaccine programs and stimulus packages, the markets recovered in an unprecedented way.
There was a worldwide surge in retail investors with active investor accounts increasing by a record 10.4 million in India. There were roughly six million Americans who joined the market by downloading retail brokerage apps. With favorable market conditions and high liquidity, 2682 deals have been finalized globally in the run-up to the IPO. There are many cases of IPOs where venture capital and private equity firms have made tremendous profits by exiting, which is called offering for sale (OFS).
Now the question arises “What’s driving the surge? why even after the pandemic retail investors are taking the risk? Why is there an increasing trend of Venture capital/private equity-backed companies getting a listing on the Stock market? what are the lessons that we can learn from 2021-the year of Investors?
IPO trends that are shaping the global markets
Global IPO trend-“The Revitalization”
Massive covid-19 vaccines roll-outs, government stimulus packages, and welfare policies have acted as moral suasion for security and stability. The rebound of global economies with stable growth projections provided an impetus for the pandemic-propelled companies to grow. India has been ranked third in the world behind the US and China in terms of unicorns, disrupting the start-up universe. This clearly shows the growing importance of start-up investing as Technology IPO proceeds increased from $54billon to $92billion with the Americas and Asia-Pacific the key markets.
Hottest Sectors
In terms of sector share, technology and health grabbed investors’ attention with a worldwide share of 21% and 14%( excluding SPAC IPOs) respectively. The fusion of technology and health would be a future, and investors would embrace it to stay relevant in the coming years.
Climate-focused tech start-ups are becoming increasingly popular with the ability to grow at a breakneck pace. Factors such as favorable government policies and public awareness of climate change are helping to mainstream the issue.
Diversity
Gender-lens investing(GLI) i.e investments in firms that are led by women, serve women customers or have a gender-balanced approach. The recent successful IPO of NYKAA is the perfect example of how gender-smart investing gaining momentum globally. According to the First round capital research, the founding team that includes both men and women gets stronger valuation growth than the all-male team.
Technology
With the successful IPO of Coinbase, there are companies across industries planning to accept cryptocurrency as the mode of payment. The biggest hurdle for the industry is regulations, once they are cleared investors can tap the trillion-dollar opportunity.
Hottest Regions
By region, the US had the largest share of global proceeds which was 57%. EMEA(Europe, the Middle East, and Africa) had the highest relative year-on-year growth of 367%. In the Asia Pacific, there was a steady growth despite resurgent covid 19 waves in the region.
Even though there was geopolitical tension between the countries, there was a positive environment for IPO activities across many markets including the US, China, Europe, and this would remain the same in the coming years.
Global IPO Trends- The role of retail investors
Factors like increased isolation, lockdowns, more time for introspection, restricted spending, and more cash in hand are some of the factors that urged retailers to go for the investments that they had never done. Now, terms like IPO, Bull run, Startup, Investment, gross margin are being discussed in the family, all thanks to SharkTank. Fixed deposits or mutual funds are not the preferred mode of investment anymore.
With the restricted movement, increased digitalization, and use of social media for almost everything, there is a well-established ecosystem supporting retail investors in every possible way. A recent case of how Reddit users toppled GameStop’s share price is a perfect example of how social media can influence stock markets. Today’s generation is curious, ready to try new things, aware of the global trends whether it is for investments or Tiktok, and the only positive thing that came out of the pandemic is that people are now more mature, and they do not see profitability as the only factor.
Global IPO Trends- Venture capital and Private Equity-backed deals
According to the EY report, In 2021 – 33.6% of global proceed were the deals that are (were) backed by Venture capital and Private Equity firms with the USA having more Venture capital and private equity firms backing IPOs. The US and Europe had 56.5% and 41.1% of global IPO proceeds respectively. There was a slight increase in the cross-border global IPOs which accounted for 18.8% of proceeds in 2021 as opposed to 10% in 2020.
According to a McKinsey report, there was a growth of approximately 20% in the private market in 2021. Private equity remained the highest performing private market asset class.
With the buoyancy in the secondary market and new retail investors entering the market, Venture capital funds and PE firms benefitted the most as seen in the global IPO trend for Offer for sale(OFS).
There was $43.2billion worth of exits made through deals in 2021. Private equity and venture capital investments were 62% higher as compared to 2020 in India. With the booming start-up culture around the world, particularly in Asia, everyone is searching for new ways to invest, and private equity has emerged as the perfect alternative.
The future
The Key concerns are ongoing geopolitics, invasions, higher inflation, new covid variants, higher volatility, lack of knowledge of new-age retail investors. The businesses that sail through these would be likely to grab the investor’s attention.
Ecommerce and financial technology dominated the year, with consumer technology and digital media expected to take center stage in the coming years.
A mix of both technology and the health sector is going to be the center of attraction for years to come. There is a need for more climate tech start-ups like Rivain as climate change problems are here to stay if not dealt with properly. Sustainable mobility is seen to be the investor’s interest as of now. All the governments are changing their policies to become more favorable for electric vehicles.
The global crisis triggered by covid-19 has escalated the need for investments that are more gender-smart. The role of impact-driven investors would be of great importance for the global IPO market.
Crypto Economy is still quite volatile but gaining traction with companies like Coinbase-the largest cryptocurrency exchange in the US making way for others.
There are a lot of IPOs in the pipeline like Reddit, which will drive the growth. All we need is to have an impact-driven approach to counter the after-effects of Covid-19 and make a profit in the long run.
About Magistral consulting
Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family Offices, Investment Banks, Asset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE funds, Corporates and Portfolio companies. Its functional expertise is around Deal origination, Deal Execution, Due Diligence, Financial Modeling, Portfolio Management and Equity Research.
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About the Author
The article is authored by the Marketing Department of Magistral Consulting. For any business inquiries, you could reach out to prabhash.choudhary@magistralconsulting.com