The Momentum Driving Equity Issuance

Q2 Equity Issuance Scale and Drivers

• May and June 2020 set record issuance volumes, with May 20% above financial crisis records and June 10% higher than May.
• Monthly raised capital of $75–$80 billion was more than double any month observed since 2018.
• Initial issuance activity was driven by pandemic-impacted companies requiring critical capital to sustain operations via common stock, convertible stock, and PIPEs.
• Subsequent activity shifted toward less-impacted or benefited companies raising capital for organic and strategic growth.
• Market recovery facilitated a return to refinancing, shareholder monetization, and a mid-May reopening of the IPO market.

IPO Market Performance

• Approximately 80% of current IPOs are trading above their offer price, a significant departure from the historical average of 50%.
• Post-crisis IPOs have been structured conservatively, resulting in aggressive aftermarket performance and renewed interest in alternative listing structures.

Comparative Analysis of Listing Structures

• IPOs: Best suited for companies seeking a defined investor education process, capital raising, curated shareholder bases, and controlled pre-IPO to public transitions.
• Direct Listings: Optimal for companies that do not need to raise capital, prefer market-based pricing, require transparency regarding selling shareholders, and are willing to build shareholder bases through execution over time.
• Direct Listing Capital Raises: Goldman Sachs anticipates that if the SEC allows primary capital raising in direct listings, adoption of this route will increase over time.

SPAC Trends and Adoption

• SPACs have existed for over 20 years but gained significant traction following structural changes initiated around 2016.
• Goldman Sachs has executed 25 SPAC transactions since 2016.
• Primary Drivers of Current Popularity:
  • Sponsor Quality: Increased reliance on sponsors with strong reputations as smart investors capable of driving business growth.
  • Economics: Improved transaction economics making SPAC mergers more cost-effective than traditional methods.
  • Success Stories: High-profile successful back-end mergers are validating the model for other companies.
• Advantages: SPACs provide certainty of price and proceeds, enable partnership with high-quality sponsors for long-term growth, and allow sponsors to conduct incremental diligence with financial projections to validate business prospects for investors.
• Capital Volume: Over $20 billion in SPAC funds were raised year-to-date in 2020.

Forward-Looking Market Outlook

• Capital raising normalization is expected as recapitalization transactions conclude, with a shift toward regular financing dialogues.
• Identified Tailwinds:
  • Continued acceleration in listing dialogues (IPOs, direct listings, SPACs).
  • M&A Recovery: Anticipated resurgence in M&A activity in late 2020 and 2021, necessitating associated debt and equity financing.
  • Re-equitization: Expectations of increased equity issuance to pay down debt accumulated during the crisis as business conditions and valuations normalize.
• Goldman Sachs remains optimistic regarding future business activity and capital market opportunities.