What’s Next for U.S. IPOs? A Busy Fall, with COVID-19 a Focus of Disclosure and Marketing, According to Paul Hastings’ Going Public: The U.S. IPO Report
September 24, 2020
New York—While the U.S. IPO market ground to a halt this spring due to the outbreak of the COVID-19 pandemic, beginning in May the market came roaring back, allowing companies with IPO plans in the pipeline before the start of the pandemic to access the market. Indeed, this summer resurgence has set the stage for an active IPO market in September and October, with COVID-19 increasingly a focus of disclosure and marketing, according to Going Public: The U.S. IPO Report, an in-depth examination of the U.S. IPO market in the first half of 2020 from Paul Hastings LLP, a leading global law firm.
The report examines data from 28 IPOs that priced in the first half of 2020 with base deal sizes over $75 million. Its findings shed light on the trends emerging in the revitalized IPO market—as well as changes brought about by the COVID-19 pandemic that may be here to stay.
“In our semi-annual report we provide an in-depth look at the state of the U.S. IPO market. But while the report examines this particular period of market activity, our team is continually reviewing IPOs on a real-time basis and developing deeper analyses and period-over-period insights that give us valuable knowledge we can leverage in approaching and executing IPOs,” said
Top insights from the report include:
Despite several mega-IPOs, medium-sized deals still prevail. Indeed, almost 45% of IPOs in the study were in the $100-$299M range. However, the first half of 2020 has also seen a return of mega-IPOs over $750M, with almost 30% of deals in this range in the first half of 2020, compared to just over 15% for full-year 2019.
Life sciences and biotech issuers, along with SPACs, dominated the first-half 2020 IPO market, but broader sectors returned late in Q2 and into Q3. Even more than historical trends, life sciences and biotechnology IPOs, in which issuers raise smaller amounts of capital, dominated the market by deal count. While these issuers accounted for approximately 34% of deals in full-year 2019, they accounted for over 60% of deals in the first half of 2020.
The SEC review process remains streamlined, but deals are taking longer to complete. While the SEC comment process remains streamlined, with an average of three comment letters and an average of 15 comments in the first letter in the first half of 2020, compared to 19 for full-year 2019, the time to market has increased by over a month. This increase is likely driven less by the SEC process and more by the market slowdown and volatility caused by the COVID-19 pandemic.
Other insights include:
Q2 saw a return to secondary sales following no secondaries in Q1. While none of the IPOs in our study from Q1 2020 had a secondary component, almost 30% of IPOs in Q2 contained a secondary component, leading to a total of 18% of issuers in the first half of 2020, compared to just under 30% of deals in full-year 2019. The prevalence of life sciences and biotechnology IPOs likely drove this decrease in secondary components, since these companies are able to access the public
markets at an early stage in their lifecycle when exits are less common at time of IPO for founders and early-stage investors.
Pricing rebounded, with half-year 2020 pricing exceeding pricing in 2019.
Approximately 65% of IPOs priced above the midpoint of the range in the first half of 2020, compared to just under 50% in full-year 2019.
Underwriting commissions are trending toward the historical norm of 7%, reflecting the decrease in high-profile IPOs where issuers had been able to negotiate lower fees.
Two years of financial information has become the new normal—particularly for life sciences and biotechnology IPOs. 90% of EGCs in our study relied on JOBS Act accommodations to present only two years of audited financial statements and two years of selected financial statements—underscoring that these trends are the new normal.
Despite some trends in Q4 2019 toward IPO issuers that were profitable, IPO issuers in the first half of 2020 largely were unprofitable, led by life sciences and biotech IPOs. Approximately 77% of IPO issuers in the first half of 2020 presented net losses on a GAAP basis, compared to 67% for full-year 2019.
While Q1 2020 saw an absence of multi-class voting structures, which are rare among life sciences and biotechnology IPOs, over 20% of issuers in the first half of 2020 had multi-class structures. This marks a return to the common feature we saw in 2019 when almost 40% of IPO issuers had multi-class voting structures.
Sponsors may see the public markets as more attractive than private sales. Going into the latter half of 2020 and into the first half of 2021, we expect that there may be an uptick in IPOs by sponsor-backed companies, as the public markets may be deemed better options for valuation compared to the private markets, as we have started to see sponsor-backed deals return to the market in Q2 and into Q3 2020.
Virtual roadshows are the new normal. As financial markets professionals and issuers shifted to working remotely, the IPO preparation process and marketing process have gone virtual.
For the full report, visit
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