US IPO activity was off to a blistering start during the first two months of 2020. However, the global COVID-19 pandemic brought US IPO activity to a screeching halt in March as at least 20 deals were postponed during the month. During the 1Q20, 24 deals were priced, 33% higher than the number of new deals priced during the same period in 2019. During 1Q20 $6.8 bln in new cash was raised – 44.7% higher than the amount raised during the same period last year.
Anemic March US IPO Activity
According to Renaissance Capital, only 2 new deals were priced in March 2020 representing a 71.4% drop from the 7 deals priced during the same month last year, and an 84.6% plunge from the 13 deals that were priced in February. The number of new pricings in March was significantly lower than the median number of monthly new deals (2 vs. 11), marking the slowest March since the financial crisis in 2009.
The volume of new capital raised in March 2020 totaled $1.5 bln, 57.1% below the $3.5 bln raised during the same month last year, and 50% lower than the $3.0 bln raised in February. Based on public filings, if not for the coronavirus outbreak, as many as 20 more IPOs could have priced during March, raising at least another $7 billion, which would have made it one of the most active first quarters of the past decade.
Seven (7) new IPOs were filed during March, a 63.2% decline over the 19 deals filed during the same month last year, and a 58.8 drop from the 17 deals filed during February.
IPO performance posted weaker returns than the overall market during March. The Renaissance IPO Index plunged 14.7% during the month compared to an 11.0% drop in the S&P 500 Index during the same period.
Mixed 1Q 2020 IPO Activity
Throughout the 1st Qtr 2020, 24 new deals were priced, 33% above the 18 deals priced during the same period in 2019, but 41.5% below the 41 new deals priced in the 4th Qtr of 2019. The number of new deals priced in the 1Q20 was 27.3% below the median number of new deals historically priced during a quarter (33). Throughout the 1Q20, $6.8 bln in new capital was raised, a 44.7% increase over the $4.7 bln in new capital raised during 1Q19, and 17.2% above the $5.8 bln raised in the 4Q19.
During 1Q20 37 new deals were filed, 5.7% higher than the 35 new deals filed during 1Q19, though it was 7.5% lower than the 40 new filings recorded during the previous quarter. With market volatility at extremely high levels, and many businesses forced to shutter their doors or go into work-from-home mode, the timeline for IPOs is unclear. The most likely near-term IPOs are companies that are relatively insulated from the coronavirus slowdown or firms that can benefit from the shift to a socially-distanced world.
During the first quarter of 2020, IPOs as measured by the Renaissance U.S. IPO Index, fell 15.8%, outperforming the overall stock market as measured by the S&P 500, which plunged 21.6% during the same period.
Our Take
Although US IPO activity was relatively strong during the first two months of 2020, the spread of the COVID-19 pandemic brought IPO activity to a screeching halt during March. In fact, we suspect that the slip seen in new filings during March, combined with continued work from home measures adopted by most companies, and the business uncertainty the pandemic is causing for most companies, will keep a lid on IPO activity for the next few months.
We believe the anemic performance seen in the US IPO market in March and the likelihood that this will continue for the next few months, near zero interest rates, weakness in trading commissions, and the drop in sell-side research revenue prompted by MiFID II, will depress earnings at most investment banks over the next few quarters. Consequently, we doubt many investment banks will be increasing their investment in their US research businesses any time soon – a factor that should restrain research department hiring over the near term.