Market Insanity: Companies Selling Stock In 2020 Are Outperforming The Nasdaq By 40%

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.