What’s next in the capital markets evolution?
As the US begins to contemplate a post-COVID-19 recovery and business and consumer confidence rises, investors are showing continued willingness to deploy large amounts of capital into both equities and the debt markets. The capital markets pipeline remains populated with high-quality issuers, which, combined with investor demand, should point to continued strength in capital raising.
US real GDP growth is set to rebound in 2021 to its fastest pace since the early 1980s. The $1.9 trillion federal economic stimulus package, along with the easing of service sector restrictions, should provide a meaningful boost to growth over the spring and summer months, with activity accelerating in the current quarter, peaking in Q2 and Q3 and moderating thereafter. While some uncertainty remains, our baseline expectation is for economic growth to top 5.5% in 2021, with some strength carrying over into early next year.
“With the capital markets at record levels of activity and valuations, our clients have tremendous opportunities and more choices than ever. But timing, execution and getting the right advice are critical.”
The US equity and IPO capital markets in Q1 kicked off with yet another record driven by the continued SPAC attack, with 389 IPOs raising $125 billion. Traditional IPOs remained relatively flat from prior quarters, so it was the market’s fascination with and enthusiasm for a broad range of SPACs (special purpose acquisition companies) targeting multiple industries that caused the increase. Media attention on some high-profile SPAC mergers generated a lot of interest. We expect a strong supply of IPO candidates to contribute to the pipeline, coupled with continued investor appetite, to support IPO markets in 2021. Still, there are questions if the current pace can continue.
US debt markets raised $789 billion in Q1. Most of the proceeds went to refinancings, but there was a notable increase in the M&A share. The Fed has indicated no rate increase this year and has had a very patient posture on raising rates. But the market’s recent upward swing in the 10-year Treasury yield suggests that other factors, such as inflation and GDP growth, will be front of mind. We expect the leveraged loan market, primarily LBO issuances, to pick up steam as private equity firms deploy their dry powder.
Please note: IPOs with deal values that are less than $25 million, best efforts offerings, oil and gas royalty trusts, business development companies, pricing on OTC Bulletin Board and OTC Pink Sheets are excluded from this narrative. Data from SEC filings and third-party databases as of 3/31/21.
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IPO Services Co-Leader, PwC US
IPO Services Co-Leader, PwC US
Capital Markets Advisory Leader, PwC US
West Coast Capital Markets Advisory Leader, PwC US