What’s Ahead for IPOs in 2021? Multiple Paths for Going Public and Increasing Regulatory Focus from the SEC Could be Among the Changes to Come in 2021, According to Paul Hastings’ Going Public: The U.S. IPO Report

New York – Despite the COVID-19 pandemic that effectively shut down the U.S. IPO market in March and April of 2020, the IPO market shrugged off the pandemic, roaring back to life with issuers across all sectors accessing the market at a prolific pace. In addition, the market saw a record year for special purpose acquisition companies (SPACs), according to “Going Public: The U.S. IPO Report,” an in-depth examination of the U.S. IPO market in 2020 from Paul Hastings LLP, a leading global law firm.

The report examines data from 140 IPOs with base deal sizes over $75 million that priced in 2019 and 2020, covering both domestic and foreign issuers. Its findings shed light on several trends with implications for the year ahead and beyond.

In 2021, there will be multiple paths to going public. Beyond the traditional IPO market, SPACs remain extremely active, and recently adopted rules have expanded the potential for direct listings on the New York Stock Exchange, leading more companies to consider direct listings with a private capital raise to provide another viable alternative to going public.

Looking ahead, it is unclear what impact the Biden administration will have on the IPO market, but there could be greater regulatory focus from the SEC, including additional attention on the SPAC market.

“Our report, which we produce semi-annually, provides an in-depth look at the state of the U.S. IPO market,” said Frank Lopez, co-chair of the Global Securities and Capital Markets Group at Paul Hastings. “While COVID-19 disrupted markets and changed how business is done in many ways, this year’s report demonstrates the resilience and energy in the IPO market, as well as the areas of opportunity and trends to follow in 2021,” he added.

Top insights include:

• Record-breaking IPO market for SPACs

  The record-breaking SPAC IPO Market represented half of the total IPO market, with more than 185 SPAC IPOs over $150 million. The average deal size for SPACs over $150 million was $369 million, and over three-quarters of SPACs provide 24 months to complete the business combination.

• Most IPO issuers in 2020 remain unprofitable

  Despite trends in the second half of 2019 focusing on issuer profitability, more than 70% of IPO issuers in 2020 were unprofitable, a slight increase over the full year 2019 results when approximately two-thirds of issuers in 2019 IPOs had a net loss in their most recent fiscal year prior to the IPO. In addition, nearly one out of every five 2020 IPOs were pre-revenue, and nearly 50% of issuers presented Adjusted EBITDA to highlight their potential paths toward profitability.

• Multiple class structures remain on the rise

  Almost 40% of IPO issuers had multi-class voting structures. Of those issuers adopting multiclass voting structures, approximately 38% had a 10:1 ratio while approximately 21% had a 20:1 ratio.

Other insights include:

• Mega-IPOs over $750 million increased to almost 30% of deals, but medium-sized deals are still most prevalent.
• Issuers from all sectors were able to access the IPO market, led by Life Sciences and Biotechnology Issuers, with a significant rise in Consumer & Retail IPOs.
• The SEC review process remains streamlined, and while COVID-19 delayed some issuers in the beginning of the year, on average issuers were able to complete their IPOs in just over three and a half months from their initial confidential submission.
• Two years of financial information has become widely accepted with almost 90% of eligible issuers presenting only two years of audited financial statements and over 80% presenting two years of selected financial statements.
• IPOs involving secondary sales were down in 2020 overall, but the increase of deals containing a secondary offerings in the second half of 2020 indicates the market for deals involving secondary offerings is becoming much healthier.

For the full report, visit https://www.paulhastings.com/area/securities-and-capital-markets/ipo-report----full-year-2020

From startups to public offerings, Paul Hastings’ Securities and Capital Markets Group draws on extensive experience with public and private offerings of equity securities to provide market insights to clients. The sophisticated global practice represents clients in key industries, including energy, financial services, technology, industrial, life sciences, real estate, and REITs. Paul Hastings lawyers advise a broad range of companies on Sarbanes-Oxley, Dodd-Frank, JOBS Act, and stock exchange requirements, as well as compliance with Exchange Act-governed SEC reporting, proxy solicitations, and disclosure obligations.

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