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Markets shock in 2020 gives way to IPO boom

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Companies raised more money through stock market listings in 2020 than in any year besides 2007, as a rebound in equities valuations lured in businesses and blank-cheque acquisition vehicles rushed to list in the US.

Businesses raised almost $300bn through flotations globally in 2020, including a record $159bn in the US, according to data provider Refinitiv. The boom included the public debuts of high-flying tech businesses such as DoorDash and Airbnb, as well as listings for groups that seek to buy others and fast-track them on to public markets.

The listings have provided financial firepower for companies in a year when the coronavirus pandemic hit hard but left vastly differing marks on financial markets from Hong Kong to London to New York.

After a violent pullback in March, US equities have rallied back to record heights, with investors snapping up shares of technology groups that have grown as consumers and businesses moved to work from home. That provided fertile ground for debuts including Snowflake, the cloud computing provider, and Unity Software, which makes technology for video game developers.

“Companies benefiting from the shifts that occurred saw incredible receptivity from a broad set of investors, ” said David Ludwig, head of equity capital markets in the Americas at Goldman Sachs. Mr Ludwig noted that demand was particularly strong for the flotations of technology, healthcare and consumer groups.

Column chart of Proceeds from initial public offerings by listing location or type ($bn) showing IPO proceeds surge to highest level since 2007

Jeffrey Bunzel, the head of equity capital markets at Deutsche Bank, added that investors had come to believe that coronavirus would have long-lasting effects, particularly on technology companies.

“There is a reality of how they have become important to the world,” he said. Some people will just “not feel comfortable going back to eating out and will continue to order food instead,” he added.

Stripping out the roughly $76bn raised through blank-cheque companies, deal activity in the US and Asia jumped more than 70 per cent from the previous year. Listings in Europe, by contrast were lethargic. At $20.3bn, they were down by a tenth from 2019 to reach almost half of 2018 levels.

Proceeds in Asia, at $73.4bn, would have been far higher if payment company Ant Group had not halted its blockbuster $37bn IPO after it ran afoul of Chinese regulators.

Ant’s absence handed Beijing-Shanghai High Speed Railway the year’s crown: the $4.4bn it raised in its IPO was the largest of the year, topping the $3.9bn raised in Snowflake’s listing and $3.8bn collected by Airbnb.

Listings for special purpose acquisition companies, or Spacs, have proliferated. Close to the end of the year, the blank-cheque businesses had accounted for slightly less than $76bn of the cash raised in the US. And others are expected to follow in the new year. In late December, SoftBank filed paperwork to list its own Spac on the Nasdaq.

Line chart of Number of US-listed IPOs per month showing Since August, Spac listings have outnumbered traditional US IPOs

Bankers and investors are now watching if the Spac phenomenon will migrate beyond the borders of the US, according to James Palmer, head of equity capital markets for Europe at Bank of America.

Some investors have expressed unease over signs of froth in markets, with one-day share price pops in recent IPOs, including for Airbnb prompting comparisons to both 2000 and 2007.

But John Leonard, the global head of equities at Macquarie Asset Management, said that while valuations had been elevated, they were now tied to strong revenue streams. “People aren’t trying to value things per click or per eyeball,” he added.



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Investors push back against UK listings overhaul

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London’s biggest fund managers have pushed back against proposals to liberalise the City’s stock market listings regime, saying changes aimed at luring in technology businesses and special purpose acquisition companies risk “watering down” investor protections.

A report by Lord Jonathan Hill, published on Wednesday, recommended allowing dual-class share structures for companies admitted to the London Stock Exchange’s “premium” segment, and lowering the limit on the free float of shares in public hands from 25 per cent to 15 per cent, meaning founders need to sell less of their business to list it. He also laid out proposals to make the UK a stronger potential venue for listings of blank-cheque companies known as Spacs.

UK companies and the country’s main listings venues, the LSE and Aquis Exchange, said the plans were vital to improving London’s attractions in a globally competitive market. But some investors are nervous.

Chris Cummings, chief executive of the Investment Association, the trade body that represents asset managers with a total of £8.5tn in assets, said the proposals were an “important first step”, but he warned that the UK needed to ensure “appropriate investor protections for minority shareholders”.

One large investor in UK-listed companies said it was strongly opposed “to the watering down of rules governing premium listing”. “Shareholder protections should not be used as a bargaining chip to prove the UK is open for business,” the investor said.

Another large global asset manager said the current standards for premium listings, including the principle of “one share, one vote”, were “critical”.

“The UK has gold standards for stewardship,” the fund manager said. “If we are going to create more flexibility for a listing, we would want over time [for companies to] work towards a premium listing with ‘one share, one vote’ and standard free float with sufficient liquidity.”

Some asset managers took a more upbeat view of the Hill review.

“Schroders is in full support of Lord Hill’s review. It is crucial that we do all we can to make the UK the most attractive place for companies to list and to do business for the benefit of investors,” said Peter Harrison, chief executive at Schroders, the biggest listed UK fund manager.

Hill’s proposals are intended to boost London’s global standing as an equity market, which has weakened in recent years as the US and Hong Kong have swept up the majority of in-demand tech listings. New York’s markets have also gained a boost from a wave of Spacs, which raise money from investors and list on a stock market, then look for an acquisition target to take public.

The departure of some large technology stocks such as Arm in recent years has cemented the blue-chip FTSE 100 index’s bias towards financials, energy and mining stocks. A loss of trading businesses to European rivals since Brexit has also further dulled the allure of the City.

The Hill recommendations are “smart, pragmatic measures”, added Sir Martin Sorrell, whose S4Capital digital market and advertising business has a dual-class share structure. “[It] also signals that the government’s ‘Singapore on Thames’ vision for a post-Brexit Britain is on the way to becoming a reality,” he said.

Makram Azar, chief executive of Golden Falcon, the European technology blank cheque company that opted to list in New York, said London needed to make significant structural changes.

“The recommendations will no doubt spur investors to look at listings on the LSE in the future. It will take time to develop the whole ecosystem around Spac listings in London, but this is the start of the sea change that’s needed.”

Others cautioned against the risks of making changes to attract blank cheque companies.

“Spac deals may be booming in the USA right now, but fear of missing out is just about the worst possible reason for making any investment decision,” said Russ Mould, investment director at stockbroker AJ Bell. “It is therefore to be hoped that the FCA maintains its critical faculties when it assesses Lord Hill’s proposals and the safeguards that he offers alongside them.”



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Oscar Health raises $1.4bn from stock market listing

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Oscar Health, the health insurance company co-founded by Joshua Kushner, raised more than $1bn in an initial public offering that topped the company’s marketed price range, in a sign of investor confidence despite political uncertainty over the future of US healthcare.

The New York-based company priced its shares at $39 each on Tuesday, according to a statement, raising about $1.4bn. Oscar would have a market capitalisation of $7.9bn at that price, based on the total number of shares outstanding.

Oscar previously said it expected its listing share price to range from $32-$34 before increasing the range to $36-$38 on Tuesday. Coatue Management, Dragoneer Investment Group and Tiger Global Management — existing investors in the company — had indicated interest in purchasing up to $375m of shares in the offering.

The move demonstrated that investors are relatively unfazed by potential headwinds for the company. President Joe Biden has vowed to reform the US healthcare system and the Supreme Court is considering a decision on the fate of the Affordable Care Act, known as Obamacare, both of which could pose significant challenges to Oscar’s operating model.

Oscar was co-founded in 2012 by Mario Schlosser and Joshua Kushner, the brother of Jared Kushner, Donald Trump’s son-in-law. Kushner’s venture firm, Thrive Capital, owned a stake that would be worth $1.3bn at the offering price and give it 75.9 per cent of the company’s voting power.

Oscar, which bills itself as the first health insurance company “built around a full stack technology platform”, has more than half a million paying members and offers its insurance plans in 18 US states.

But the company has struggled to become profitable. In 2020, it recorded widening losses of more than $400m on revenues of about $460m, a decline from almost $490m of revenues the previous year.

Oscar’s IPO came on the heels of several other public market debuts for “insurtech” groups in the past year, which fuelled an already strong run of stock market listings.

Clover Health, which uses data analytics to connect senior citizens to Medicare Advantage plans, merged with a special purpose acquisition company, or Spac, sponsored by former Facebook executive Chamath Palihapitiya in a $3.75bn deal in October. Lemonade, which sells rental, homeowners and pet health insurance, went public last summer in what turned out to be one of the year’s most successful stock market debuts.

Oscar is highly sensitive to any changes to Obamacare, which lawmakers have wrestled over since it was written into law in 2010. Almost all of the company’s revenue comes from plans subject to Affordable Care Act regulations, according to its prospectus.

President Joe Biden’s healthcare programme would leave Obamacare largely intact, but would make some adjustments and add a public option for all Americans. The Supreme Court, meanwhile, is expected to announce a decision on yet another review of the Affordable Care Act in the coming months.

Goldman Sachs, Morgan Stanley and Allen & Co led the offering.



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Spac led by tech founders targets Europe’s unicorns for US listings

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Tailwind International, the New York-listed special purpose acquisition company, is searching for European tech unicorns to list in the US as part of plans to bypass EU and UK markets and build a multibillion-dollar franchise of Europe-based businesses.

Tailwind, which says it is the first Spac where a group of European tech founders will focus on investing in the region’s tech companies, raised $345m on the New York Stock Exchange last month with the intention of taking a European tech group public in the US. 

Tommy Stadlen, co-founder of venture capital fund Giant and the Spac’s chair, said: “We will bring one of Europe’s iconic technology companies to the US public markets.”

Pierre Denis, former Jimmy Choo chief executive and Coty board member, is the chief executive. Nathalie Gaveau, co-founder of French ecommerce site PriceMinister, is president and other sponsors include the co-founders of luxury online retailer MatchesFashion and German meal kit delivery business HelloFresh.

Philip Krim, the co-founder of online mattress start-up Casper, is a co-founder.

The number of Spacs — which list on the stock exchange before they find a business to buy — has grown rapidly in the US in the past few months as investors have piled in with the hope of acquiring stakes in promising target businesses.

In February alone a total of 174 Spacs filed or priced for expected gross proceeds of $56bn, according to data from FactSet.

So far this year, there have been more than 180 Spac filings, against last year’s total of nearly 250, which was the highest in five years.

European tech groups, including the UK’s used car site Cazoo and health app Babylon, have already held talks with US Spacs

The Tailwind team is planning to launch a series of Spacs to build out the franchise. The minimum size of any target would be $1bn, Stadlen said, ranging up to $15bn, with the potential to raise additional equity.

He said the UK would be a focus owing to the larger numbers of promising tech companies, alongside France, Germany and the Nordic nations.

In a sign of booming demand among investors, Tailwind increased the size of the listing from $250m to the maximum of $300m, and also exercised the “greenshoe option” that allowed its underwriters to buy up further shares, taking the total to $345m. People close to the process said there was $3bn of demand for the initial public offering. 

Stadlen said Tailwind would have an advantage in being run by tech founders — pointing out that operator-led Spacs outperformed peers — and that a “multi-Spac” platform was more likely to succeed because of access to resources.

Tailwind has already had conversations with European venture capital firms and founders to discuss potential US listings of their businesses, he said.

He added that European exchanges had been unattractive to tech listings because they offered lower potential returns. Only two have listed in Europe so far this year, according to Refinitiv. A US Spac offers founders access to US markets where there were “more capital and better valuations”. 

Bankers in London are keen for the UK government to change the listing rules on Spacs to compete with New York and rival cities in Europe. At present, a Spac acquisition in the UK is considered a reverse takeover and the shares are suspended. Trading cannot resume until a deal prospectus is published, for which there is no specified deadline, so investors who want to sell their shares can find themselves locked in.

Bankers in London have talked up Amsterdam as Europe’s hub for Spacs, while German venture capitalist Klaus Hommels launched a European tech-focused Spac, Lakestar, in Frankfurt last week, the first on the Xetra market in a decade.

“We are open to Spacs as a product and have all the conditions in place for more of these to go public in Germany. They have been the go-to topic in most calls with issuers, banks, and lawyers over the past six months so we expect Spac listings to accelerate in Europe,” said Renata Bandov, head of capital markets at Deutsche Börse.

“In the post-Brexit environment, UK-listed companies cannot currently passport their prospectuses into the EU so we anticipate a higher influx of dual listings.”



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