RapidRatings CEO James Gellert joined he FInal Round to discuss what investors can expect the 2021 IPO and SPAC markets to look like.
ADAM SHAPIRO: From investing to startups to eventually going public, let's bring in James Gellert from RapidRatings. He's the CEO. And while we talk about the tale of two economies, I think when we look at 2020 and as we look at 2021, 2020's certainly the year of the SPAC, right? Over $70 billion plus in funds raised through SPAC. But going into 2021, people forget that they can lose money and get burned with SPACs, don't they?
JAMES GELLERT: Well, they seem to forget that they can lose money on just about anything these days. But absolutely the SPAC craze is a bull-market phenomenon, and I expect we'll see a fair amount of volume going into '21 in IPOs but in SPACs as well because, you know, not many people have lost money on them, but without a doubt the people who make the most money are the sponsors who create them in the first place. But we're going to see a lot more of them in the coming year.
SEANA SMITH: James, just taking a step back and kind of looking at the sectors and what outperformed this year, health care, technology once again were the most popular sectors when it comes to the IPO market. Do you think that's going to continue to be the case next year, or is it going-- are we going to see a bit of a rotation similar to what we're seeing in the market right now?
JAMES GELLERT: Well, look, I think there's always an underlying component of the IPO market which are smaller-cap names, biotechs in particular, that are always a constant in the IPO market. What you see on top of that in these more cyclical periods or booms in IPOs is a lot of tech names. I think we had a lot of tech names in the queue. I expect we'll see a lot more of them.
And anything that has benefited or stands to benefit from the pandemic-era and pandemic economy is going to be at the forefront, like we've seen with companies like DoorDash and BigCommerce and some other major successes from 2020, so I think we'll continue to see that.
But the real concern will be what happens with all of the elements of volatility that are going into this market and which, if any of them, will break negatively. And I don't know that we've ever had a period where we've seen-- actually had this many variables in risk going from the spike in COVID cases to lockdowns to speed and success of vaccinations, stimulus funding and the timing of that, Fed support, interest-rate environment, corporate liquidity and corporate financial health. All of these-- each one of them is a major issue, and they really have to all continue to be positive or as least negative as possible for the market to continue to be as robust as it's been in the second half of 2020.
ADAM SHAPIRO: James, in previous appearances we've done deep dives on specific companies like American Airlines and their health ratings because that's what RapidRatings does. It gives a financial health score and a corporate health score. And I'm curious what companies that have been darlings this year-- Zoom, for instance. Might there be red flags on the horizon for these companies?
JAMES GELLERT: Well, I think companies like Zoom have done a really good job of building their business with the capital that they raised in the IPO market and also, of course, benefiting from this economy. But companies that have come to market and were reasonably successful in the IPOs but have deteriorated in financial health would be companies like Warner Media.
But all throughout the corporate landscape, you've got companies that are struggling a lot more than they appear. If you look at all of the companies that we rate across the globe from 140 countries, tens and tens of thousands of public and private companies, we've actually seen the first nine months of this year financial-health deterioration of close to a couple of points, which is a lot in a historical context.
And maybe even more so-- more importantly, the Core Health Score, which looks out two to three years at the core efficiencies of a company and is less dependent on the liquidity in a company, we've seen that deteriorate over 3 and 1/2 points on a hundred point scale. So again, that's significant.
ADAM SHAPIRO: Right.
JAMES GELLERT: A lot of companies have benefited from their access to capital and the liquidity that they've been able to raise--
ADAM SHAPIRO: Yep.
JAMES GELLERT: --during the pandemic. The real question is whether--
ADAM SHAPIRO: Oh yeah.
JAMES GELLERT: --they're going to be able to continue in that vein.