"2020 has been a stunning year for countless reasons, and one of them as we previously reported is that following the covid pandemic there was an absolute avalanche of equity offerings, culminating with some $113 billion in stock sales in the second quarter as we showed before.
"Yet while the staggering amount of follow-on offerings is not news, the performance of companies selling their stock is nothing short of shocking, because whereas in a normal world the association dilution with new equity sales would in theory result in depressed stock prices, the reality of the past few months has been anything but. First, a quick update on equity offerings as of late August.
As Bloomberg notes today, a new milestone in secondary offerings shows the power of this year’s unique market in bringing together sellers and buyers. Issuers and their largest holders have now priced 783 secondary offerings on U.S. exchanges this year, with the total surpassing 2019’s full-year total of 780 on Monday.
In terms of cash proceeds, the $169 billion raised in this year’s secondaries is already the most for a full calendar year since 2015. And unlike the surge in IPOs, which has been driven largely by special purposes acquisition companies, Bloomberg notes that these secondary offerings are being conducted in real businesses.
Two main factors deserve the credit for this years-high in deal flow. On the sell side, companies found themselves scrambling to cover cash needs, while a pandemic spoiled expectations for revenue. On the buy side, traders kept coming back for more after recent deals shocking outperformed the broader market.
And here is the punchline: stocks sold in 2020 secondary offerings closed on Tuesday 39% above their offering price on average. That’s outpacing the year’s 28% gain in the Nasdaq Composite Index, a 40% outperformance.
There's more: the performance of July’s 98 secondaries, which closed Tuesday an average of 278% above their offering price, serves as a recent and major source of excitement for more paper in the market. Indeed, if investors are clamoring for public companies to sell their stock and raise cash, which company in its right mind would say no?
As Bloomberg concludes, while the pace of deals is now slowing heading into a traditional vacation period for equity capital markets, bankers are optimistic that the final four months of 2020 continue to serve as fertile grounds for even more secondary offerings."
"Companies raised more money through stock market listings in 2020 than in any year besides 2007", FT
"Companies raised more money through stock market listings in 2020 than in any year besides 2007, as a rebound in equities valuations lured in businesses and blank-cheque acquisition vehicles rushed to list in the US.
Businesses raised almost 300bn through flotations globally in 2020, including a record 159bn in the US, according to data provider Refinitiv. The boom included the public debuts of high-flying tech businesses such as DoorDash and Airbnb, as well as listings for groups that seek to buy others and fast-track them on to public markets."
Knowing this back in August could have made the right person a lot of money. Because the market is so bullish, follow-on offerings have turned into the perfect manufactured dip opportunity. Underwriters are also allowed to manipulate the price
This is from a ZeroHedge article, by the way. Their archives recently went private, which is a huge bummer. People love to hate on ZH because of their anti-establishment/conspiracy leanings, but I think they are hands down the best collection of geopolitics and market research on the entire internet.
DSharp78
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@stocktradez6, Hey thanks for sharing your thoughts. I'm new to trading. When you said "follow-on offerings" I assume you mean stock offerings. Is "follow-on" a new way or time that companies use to offer stock or am I reading too much into it? I have noticed that whenever a corp decides to offer stock for sale, the price dips, even on well known stocks that have been tagged as "strong buys" from analysts. It makes sense since it's a human reaction as I;ve sen them dip and then an hour or two later it bounces back. Being new, my best strategy is essentially swing or day trading, usually holding the stock for no more than 2 or 3 days so when I hear about stock offerings on companies I want to trade, I'm now patiently awaiting for the dip buy opportunity.
stocktradez6
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@DSharpPDX,
A follow on offering is just a secondary offering -- post IPO (first public offering). Just industry lingo.