IPOs surge to record in 2021 with most issuers hitting target price: EY

Dive Brief:

• The U.S. market for Initial Public Offerings (IPOs) surged in 2021 more than at any time in 21 years, with 75% of issuers achieving or exceeding their targeted price ranges, EY said.
• Issuers raised $155.7 billion in 416 deals during 2021, EY said, noting that the IPOs generated returns exceeding 20% one month after pricing but “declined considerably through year-end.”
• This year has seen a number of high-profile food and beverage companies struggle once they reach the public markets, including Oatly, Dole and Vita Coco. Nearly all have fallen below their listing price.

Dive Insight:

CFOs who completed IPOs in 2021 rode several tailwinds, including fiscal stimulus, record-low interest rates, high stock valuations, abundant capital and the global rebound from the pandemic-induced recession.

During the fourth quarter, however, “the winds shifted with the surfacing of the COVID-19 variant, continuing geopolitical tensions, slowing IPO activity and increased market volatility,” EY Global IPO Leader Paul Go said.

Companies that seek capital through IPOs in 2022 “will need to satisfy investor demands for resilient growth strategies and well-articulated environmental, social and governance (ESG) plans,” he said.

The global IPO market broke records in both volume and value, with 2,388 deals raising $453.3 billion, a 64% and 67% increase, respectively, compared with 2020, EY said, citing data on completed and expected IPOs as of Dec. 9, 2021.

In the U.S., the number of special purpose acquisition company (SPAC) IPOs exceeded traditional IPOs in 2021 and accounted for 90% of the transactions and 95% of the proceeds of SPACs worldwide, EY said.

After an initial burst at the start of 2021, SPAC IPOs in the U.S. declined in the face of “market and regulatory headwinds,” EY Americas SPAC Leader Karim Anani said.

Food and beverage companies also have tapped into red-hot equity markets and investors eager to find ways to put cash to work amid low interest rates. As of Oct. 27, more than $3 billion in deals had been completed, according to Dealogic. Companies that go public want to strike while markets are enticing rather than wait for when conditions could be less attractive, cutting into the amount of money they collect in an IPO or SPAC deal.

But food and beverage makers have seen their shares decline from their IPO or the day when they completed their SPAC merger. One of the few exceptions to rise is Sovos Brands, a maker of pasta sauce, pancake mix, yogurt and frozen Italian meals.

“The fact that they [have] fallen below their IPO price doesn’t mean that they’re bad companies. It just means that they were overpriced companies,” Erik Gordon, a business professor at the University of Michigan, speaking of food and beverage listings as a whole, said in November. “And the fact that they’re overpriced companies is not related to them being food companies, it’s related to when they went public. They went public during a frothy market.”