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More new shares please! The IPO market is getting hotter

Experts say the Federal Reserve’s decision to keep interest rates at zero for the foreseeable future helped fuel demand for IPOs while boosting the overall stock market, and especially high-growth technology.

“IPOs are doing well and I think that is what happens when the Fed pumps money into the financial system,” said Troy Hooper, director of IPO content at Mergermarket. “The money has to go somewhere.”

More and more companies are choosing to list on Wall Street through mergers with so-called blank check special purpose vehicles. Electric vehicle makers Lordstown Motors and Hyliion plan to go public through mergers with SPACs.
DraftKings and Richard Branson Virgo Galactic (SPCE) went public through SPAC deals. Branson is now looking to raise more money by starting its own SPAC to buy more businesses.
Reuters reported Friday that Playboy, which went private in 201
1, is considering a return to Wall Street via a merger with a SPAC. And even some non-Wall Streeters – like former House Speaker Paul Ryan, and Moneyball baseball manager Billy Beane – support SPACs.

The window for IPOs may close soon

There is a growing feeling that big unicorn startups will be looking to go public in the next few weeks to get their stocks to trade before the election – especially after the strong debut for Snowflake, which more than doubled on day one Has.
Big data company Palantir will be listed on the New York Stock Exchange on September 29th. Drug price comparison company GoodRx and collaboration software developer Asana are expected to start trading before the end of the month.
Palantir plans to list existing shares directly on the NYSE. This allows him to bypass a long Wall Street roadshow – the series of meetings with potential investors. This also means that no new shares need to be issued. Spotify (JOB) and Relaxed (JOB) went public in this way.

The Securities and Exchange Commission is also looking to pass a new rule that would allow companies to raise new money even by listing their stocks directly. More companies could go public via direct listing if they could list stocks and generate cash at the same time.

“It will be interesting to see what happens to Palantir and Asana. After Snowflake, there is an increased interest from asset managers in technical unicorns,” said Phil Haslett, co-founder and chief revenue officer of EquityZen, a company that investors use to buy pre-IPOs can share shares of private companies.

Why is 2020 the year of SPACs (and what the hell is a SPAC?)
Waiting in the starting blocks to possibly go public in 2020: Airbnb – which Haslett called the “elephant in the room” – and DoorDash. Jack Ma’s Ant Group, the finance arm of the Chinese e-commerce leader Alibaba (BABA)also wants to go public in Hong Kong and Shanghai before the end of the year.

“The window for the IPO will likely close in mid to late October. After that, the listings may be closed,” said Haslett. “There are many risks to companies waiting to go public next year. There is still dry powder to raise money in the private market, but valuations could be lower.”

Blank check offers will continue to be popular, especially because they don’t take as long as an IPO or direct listing.

So far there have been almost 100 SPAC deals in 2020, which have led to an increase overall According to Evan Ratner, managing director and portfolio manager for SPAC strategies at Levin Easterly Partners, $ 35 billion. That’s only 59 SPAC transactions Raised $ 13 billion for the entire last year.

“With a SPAC, a private company can go one-on-one to another company to get it public,” said Ratner. “It’s about credibility and maximizing value. If you’re a company with real funding needs and a good brand, a SPAC might make sense.”

Now or never?

Companies planning public offers seem to recognize this too. And there is a newfound sense of urgency.

Thomas Healy, CEO of Hyliion, said his commercial electric vehicle company, than stay private. But ultimately, he felt that now was the time to go public.

“What we loved was the ability to raise more money. It will help us grow the company,” said Healy.

Hyliion merges with a blank check company called Tortoise Acquisition Corp. (SHLL) and raise $ 560 million from so-called private investments in public equity (PIPE). Shareholders will vote on the transaction on September 28th. If approved, the ticker will change to HLYN.

But the traditional IPO isn’t dead. Startups want the legitimacy that comes with a publicly traded company that has been vetted by top investment banks.

“This is a proud moment. We just turned the corner to kosher telehealth,” said Roy Schoenberg, co-CEO and president of Amwell, a virtual health company that competes with Teladoc. Amwell went public on Thursday and its shares soared nearly 30%.
However, some fear that the big pops for newly listed companies are reminiscent of the dot-com bubble of 20 years ago. Although the harvest of unicorns going public today is of a higher quality than Pets.com, which went public in February 2000 and went down nine months later, the debut prices for many new stocks are just too high.

“We’re definitely seeing animal spirits rampant. The ratings don’t make sense,” said Max Gokhman, capital markets strategist at Pacific Global Asset Management. “Snowflake is a solid business. But if its wings are made of snow, they will melt by flying near the sun.”

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