While all the industries faced the brunt of the coronavirus outbreak last year, high levels of volatility in global capital markets due to the pandemic supported investment banks (IBs), leading to record-high fees in 2020, per Refinitiv.
IBs benefitted from the rebound in IPOs as companies looking to improve their liquidity amid the pandemic concerns came knocking the equity markets. The signs of recovery were visible in the last couple of weeks of the second quarter, with the trend witnessing a significant upswing during the third and fourth quarters.
In fact, 2020 has been one of the busiest years on record for IPOs, with more than 300 companies making their debut on the NYSE. Per a
Finance Feeds report, these companies have raised a combined $81.80 billion in market cap. Snowflake Inc. ( SNOW Quick Quote SNOW - Free Report) , Unity Software and Airbnb were some of the successful IPOs of the year.
Also, companies returned to their existing shareholders for funds, leading to a rise in secondary offerings. Per the data provider Refinitiv, global equity capital market volumes hit an all-time high of $1 trillion in 2020, whereas fees from IPOs reflect a 13-year high of $10 billion.
Further, during 2020, IBs benefitted from companies loading themselves up with debt in order to benefit from the low interest rates. Also, some of the companies from sectors such as airlines and retail which were hit hard, took up debt to combat the pandemic-induced liquidity crunch.
The Financial Times reported that in 2020 more than $5 trillion in debt was raised, as multinationals showed interest in the bond markets to lock in longer-term funding at near-zero interest rates.
Despite pick up in deal announcements in the second half of 2020, global M&A deals fell to a three-year low in 2020 due to the significant coronavirus-led slowdown in the first half as people were locked at their homes and were uncertain of the effects of the virus outbreak. Per Refinitiv, 48,226 deals were announced last year compared with 50,113 deals in 2019.
Technology, healthcare and financial sectors seem to have kept the deal-making active in the latter half, with
S&P Global’s ( SPGI Quick Quote SPGI - Free Report) buyout of IHS Markit Ltd and AstraZeneca’s acquisition of Alexion Pharmaceuticals being some of the prominent deals to be announced.
Notably, Wall Street biggies —
JPMorgan Chase ( JPM Quick Quote JPM - Free Report) , Goldman Sachs ( GS Quick Quote GS - Free Report) , Bank of America ( BAC Quick Quote BAC - Free Report) , Morgan Stanley ( MS Quick Quote MS - Free Report) and Citigroup ( C Quick Quote C - Free Report) — grabbed about 30% of fees earned in 2020, Refinitiv reported.
Thus, the full-year performance of investment bankers, who provide underwriting and advisory services for IPOs and secondary market offerings along with M&As, is likely to have benefitted from the rise in most activities.
Will the Trend Continue in 2021?
The investment banking boom is expected to continue in 2021 as the companies are likely to take advantage of the favorable stock market valuations, leading to continued demand for IPOs.
Also, with the economy and business activities gradually recovering; dealmakers will likely revisit transactions that were on hold as coronavirus wreaked havoc across the world. Further, private equity firms, which were largely on the sidelines so far, have started deploying funds to make profitable investments.
Further, positive developments toward vaccine rollouts, emerging from across the world, might keep the momentum alive, as investors with better confidence levels would be ready to invest in the markets.
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