2020 was a big year for IPOs, here’s what to expect in 2021

The year 2020 was a monumental year for Initial Public Offerings (IPOs) globally, with around 1,400 IPOs raising a staggering $330 billion collectively. This marked a 50% increase from 2019, reflecting a significant uptick in IPO activity. As we step into 2021, the big question on investors' minds is whether this momentum will continue, especially in the technology sector. Henry Bittelcomb, Equity Analyst and Co-Manager of the Global Technology Fund at Anchor Capital, shared his insights on what to expect in the world of IPOs this year. The surge in IPO activity in 2020 was a clear signal of how companies perceived valuations in the equity market. Bittelcomb highlighted that companies prefer to sell equity when valuations are high, making it a favorable time for IPOs. The influx of IPOs, particularly in the tech space, last year demonstrated a collective view that equities were in a favorable position. However, Bittelcomb cautioned that such heightened activity often indicates the later stages of a market cycle. In the US, about one-third of the capital raised through IPOs in 2020 was for Special Purpose Acquisition Companies (SPACs), which are speculative in nature. Bittelcomb pointed out that this trend, along with the significant increase in IPOs, suggests that the tech sector may be nearing its peak. He noted that IPOs for companies like Airbnb saw massive post-listing price surges, indicating a lack of value for investors at the IPO stage. As for the South African market, Bittelcomb emphasized that it is at a different stage compared to global markets. With valuations at all-time lows in the small to mid-cap space, IPO activity is expected to be subdued locally. The analyst also highlighted a rising trend of delistings on the Johannesburg Stock Exchange (JSE), where companies are opting to exit the market due to unfavorable equity valuations. Looking ahead to 2021, Bittelcomb anticipates a continuation of the delisting trend in the South African market. He believes that this year could be favorable for emerging markets, with liquidity returning to these regions and investors showing a preference for risky assets. While South Africa may not be at the top of the list for fund managers, there could be a shift in sentiment as the global pandemic situation evolves. In conclusion, the IPO landscape in 2021 is poised for further evolution, with a focus on navigating the tech sector and the dynamics of global markets. As investors brace for potential shifts in valuations and market cycles, staying informed and vigilant will be key to making sound investment decisions amidst the IPO frenzy.