Baird’s 2021 Outlook - Equity Capital Markets

After a Record-Breaking Year, Momentum Likely to Continue in 1H 2021

Happy New Year from all of us on Baird’s Equity Capital Markets team. We wish you and your families happiness, health and success in 2021.

As we begin the new year, we’re pleased to share our 2021 equity capital markets outlook with you.

Turning the Page on 2020

While 2020 was a monumentally turbulent year by many measures, it was also a year of robust activity for the global equity markets. Major U.S. indices ended the year near all-time highs, building on 2019’s strong performance in the face of significant headwinds including the economic and public health fallout surrounding the global COVID-19 pandemic. Investors placed increased attention on trusted information sources to help navigate the often-volatile markets. We saw evidence of this at Baird in our research readership, which increased over 50% in 2020, and record attendance at all of our institutional investor conferences, which successfully transitioned to virtual formats.

Capital raised via equity offerings was record-breaking in 2020, with 900+offerings raising more than $350 billion in capital – increases of 37% and 73% year-over-year, respectively. The average 2020 return on an index of IPO stocks was a staggering 77%. This brisk performance also unfolded against a backdrop of widespread uncertainty, volatility and remote work arrangements, which transformed how equity offerings were marketed and executed.

Lightning Round – What’s Ahead for Each Sector?


Tech - Froth Set to Spill Over into 1Q

Digitization and cocooning trends underpinned the Technology sector’s momentum in 2020, with the year seeing multiple “Mega-Deals” come to market, including Airbnb’s $3.8B upsized IPO. Software and Internet issuers like Vroom and Bentley Systems were especially well-aligned with current emerging trends and proactively capitalized on receptive market conditions. While the vast majority of Technology issuers opted for traditional IPOs to become publicly listed, two highly anticipated issuers (Palantir and Asana) chose direct listings, an alternative path that will likely persist moving into 2021 as new SEC approval now permits a primary capital component for this execution type. Nonetheless, Baird’s Technology IPO backlog remains robust moving into the New Year, especially in the Software and Internet subsectors.

Healthcare - New Normal, Same Tailwinds

In a year defined by a once-in-a-generation global public health event, the Healthcare IPO market was brisk, matching the record deal volume seen in 2014. Life Sciences offering activity was particularly robust, accounting for over a third of overall ECM activity. Investors remain focused on companies providing new innovations to the world of medicine. Outside of Life Sciences, those with a telehealth focus had particularly strong initial offerings given the rapid shift to remote delivery of care. Businesses with offerings suited to a post-pandemic world will continue to command investor interest.

Industrial – Early-Cycle Optimism Laying the Groundwork for Continued Momentum

After two and a half years of muted activity, Industrial offering volume accelerated in the 2H of 2020. Historically, the Industrial sector experiences relative outperformance in the early and middle stages of an economic recovery. Thus, the IPO pipeline continues to build towards a strong 1H 2021. With a supportive market backdrop, strong and improving valuations and newfound hope for increased infrastructure spend, 2021 is well-positioned to recover to the robust activity levels last seen in 2017.

Consumer: Digital Dominance and Changing Consumer Behaviors Will Drive Activity

Ecommerce, outdoor living, digital health and wellness equity offerings saw considerable activity in 2020. Companies that support these new preferences as well as evolved lifestyles and behaviors in the proverbial “new normal” are likely to fetch premium valuations in the New Year.

Real Estate – Confidence in 2020 ECM Activity Pullback to Reverse Course

One of the few sectors to see a pullback in YoY equity offering activity due to pandemic headwinds. A continued vaccine rollout should be incrementally positive to increased activity as value shifts more into favor.

2021: The Year of the De-SPAC

The buzziest acronym in the 2020 global equity markets was “SPAC.” More than 240 SPAC IPOs were completed in 2020 – an increase of more than 320% year-over-year – raising more than $83 billion in capital.

As we flip the calendar to 2021, we will begin to see a dramatic uptick of “de-SPAC” processes unfold as SPACs identify and pursue acquisition targets across all sectors, but potentially most notably in the Technology and Vehicle Tech/Mobility sectors. We expect SPAC initial public offerings to continue in 2021 but do not believe it will cannibalize traditional IPO activity. Companies will continue to choose both paths. See our M&A outlook for Baird’s expectations for SPAC and other M&A activity in the new year.

Virtual Underwriting in 2021 and Beyond

The global pandemic of 2020 also altered the way investment banks execute equity offerings and connect with investors. Condensed “virtual” roadshows drove increased efficiency and record transaction velocity.   Even with the continued rollout of vaccines and increasing hope of a return to more “normal” work arrangements, some of our new ways of doing business are likely to stay in place.

The pandemic forced issuers and underwriters to find new flexibility – both in terms of marketing duration and timing – in the traditional roadshow framework. We saw a similar ramp-up in virtual “testing-the-waters” (“TTW”) meetings with investors. The ease of connecting over virtual platforms increased companies’ access to investors, and many IPO processes undertook two, fulsome rounds of TTW meetings. We do not expect this trend toward virtual meetings to abate any time soon as it has been a key driver in more efficient, fulsome and high-quality roadshows. That said, we do expect in-person meetings to eventually return – albeit in a new, limited normal format, with most face-to-face meetings taking place in major money centers like New York and Boston.

Baird’s 2020 Equity Offering Activity

Baird completed 99 transactions that raised more than $40 billion in capital, and our IPO backlog is robust as we start the new year. The following is a small sample of the transactions we executed in 2020.

See our complete 2020 transaction activity:

Baird's 2020 Equity Offering Activity
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