By Emily Bary
MarketWatch photo illustration/iStockphoto
Companies in need of cash are rushing to take advantage of an opportunity to raise money through equity markets while they still can.
The mad dash to fortify balance sheets following a rocky spring and ahead of an uncertain fall helped make May the biggest month for follow-on offerings by dollar value since December 2009, according to Dealogic data.
There’s perhaps no better sign of the exuberance of the current equity market than Hertz Global Holdings Inc.’s /zigman2/quotes/200655672/composite HTZ +11.92% desire to sell up to $1 billion in new shares just weeks after it filed for bankruptcy.
The market for initial public offerings hasn’t been quite as robust, though it’s picking up again after a slow start to the year. June isn’t even halfway over, but it’s already been the best month so far this year for IPO volumes, buoyed by successful debuts for Warner Music Group Corp. /zigman2/quotes/218669580/composite WMG +2.28% and Vroom Inc. /zigman2/quotes/218801255/composite VRM +0.05%
Both stocks are up sharply from their IPO prices, helping inspire confidence among other companies considering moves to the public markets.
“There’s still uncertainty about what the future holds with vaccines and a second wave [of COVID-19 infections], so while the window of opportunity is available, it makes a lot of sense for companies to raise capital,” said Reena Aggarwal, a finance professor at Georgetown’s McDonough School of Business.
If the window is going to stay open through the balance of the year, “a lot has to fall in that direction,” said RapidRatings Chief Executive James Gellert. He deems it unlikely that there will be stability heading into election season or that the U.S. will avoid a second surge of COVID-19 infections, which could rattle investor confidence.
Companies looking to bolster their balance sheets conducted 104 follow-on offerings that raised $50.3 billion in aggregate during May, making for the second largest month by dollar volumes since at least 1995, according to Dealogic. Last month’s totals compare with 62 offerings that raked in $15.5 billion in the same period a year ago.
June has seen 59 follow-on deals so far valued at $16.4 billion in aggregate. Weekly follow-on volumes in each of the past five weeks have been at least double what was seen in the comparable periods a year earlier.
“There’s a lot of diversity in terms of the size of the offerings,” Aggarwal said, citing smaller offerings in the $20 million range all the way up to billion-dollar plus deals like Moderna Inc.’s /zigman2/quotes/205619834/composite MRNA -2.82% May offering, which raised more than $1.3 billion as the company works on developing a potential COVID-19 vaccine.
There’s also been some variation in the scope of companies testing the IPO market, but many seem to be plays on the “new ways people are operating,” coming out of the COVID-19 crisis, said Kathleen Smith, a principal at Renaissance Capital, which offers the Renaissance IPO ETF /zigman2/quotes/207665280/composite IPO -1.84% .
The current IPO market is bringing out lots of new-economy technology companies, as is typical, but it also recently featured Azek Co. Inc. /zigman2/quotes/218913553/composite AZEK -2.01% , which manufactures composite building products with more of a focus on residential business.