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What’s Behind the Record-Breaking IPO Market

Goldman SachsElizabeth Reed, Allison Nathan, Lizzie Reed
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  • The market is forecasted to be "very active" in September and "very effective" throughout the fourth quarter of 2021, with issuers tracking to reach "very close to the record-breaking global issuances volume record" of $1.16 trillion for the full year 2021.
  • A "deep public IPO calendar" is expected to feature many companies pursuing marketed follow-ons, supported by a "Goldilocks scenario" characterized by a "stable macro backdrop" and "tremendous multiple expansion," alongside "tremendous amount of supply" anticipated to enter the market over the course of Q4.
  • Low interest rates are identified as "opportunistic" for issuing convertible bonds, while innovation across traditional IPOs, direct listings, and SPACs is expected to continue, with SPAC issuance volume seeing "more evolution" and confidence that these products "are here to stay."
  • Strong capital formation on the buy side is expected to enable issuers to partner with various investor types in both the "near term" and "long term," allowing the market to "definitely absorb" the high volume of supply driven by "tremendous high quality issuers."
  • Risks include potential "bouts of investor fatigue" that the market may need to "pause through" during the high issuance period, alongside impacts from the Fed meeting signaling regarding "tapering" and the "potential impact on rates."
  • While rising rates themselves are not expected to cause concern, the "speed or the volatility around rates" is projected to be a primary concern for "equity investor sentiment," potentially impacting "growth-oriented assets" trading at "extremely high multiples."
  • Tax reform regarding corporate and capital gains taxes is expected to influence "investor sentiment" and the preference for "underwriting primary offerings versus secondary offerings," while the regulatory environment will continue to affect global corporate access to capital markets.
  • Mutual funds with record-low cash allocations of 1.6% are expected to drive investor behavior toward being "selective" or "constructive and bullish," while retail investors are anticipated to "remain very active within equities" and provide "very broad distribution in the IPO space."