ANALYSIS: Are IPOs Coming to the End of ‘Pandemic Normal’?

Oct. 6, 2021, 8:10 PM

The IPO market in the third-quarter posted results similar to the previous quarter, as initial public offerings settled in and got comfortable with an elevated “pandemic normal” range.

IPOs increased to 214 deals from 193 in the prior quarter, while the capital raised in IPOs dipped to $54 billion from $60.9 billion. With the exception of a significant spike in deals recorded in the first quarter, deal counts and values have been relatively steady since the third quarter of 2020, at levels well above those of pre-pandemic quarters.

The IPO market has been buoyed during the pandemic by very accommodating monetary policy from the Federal Reserve. Cheap money has effectively provided a higher floor for the market. That stability has recently come under threat from turbulent markets and an overabundance of deals. Deteriorating market conditions have made some companies skittish enough to pull their IPOs. Recent rising interest rates, the Federal Reserve Open Market Committee’s statement on Sept. 22 that tapering of the Fed’s asset purchases could begin as early as November, and the increasing likelihood the Fed will raise interest rates in 2022 further threaten this “pandemic normal” in future quarters.

New listings in Q3 were led by closed-end investment company BlackRock ESG Capital Allocation Trust, with $2.5 billion raised.

Controversial online brokerage Robinhood, a key driver of the gamification of retail investing, led traditional operating company IPOs with nearly $2.3 billion raised. Robinhood shot to prominence with its $0 commission trades and game-like approach to investing. The company registered the quarter’s second-largest IPO, but suffered the worst first-day session ever for an IPO of its size, with shares falling 8.4% below the IPO price.

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