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Nasdaq Head of Tech Listings on why companies are going public before the election

Jeff Thomas, Head of Tech Listings at the Nasdaq, joins The Final Round to highlight companies going public, the state of the tech sector during recent volatility, and advantages to utilizing a SPAC.

Video Transcript

SEANA SMITH: Welcome back to The Final Round. I'm Seana Smith. Now, the IPO market is expected to have its biggest week in more than a year this week 14 companies set to go public, 10 of them listing on the NASDAQ. So for more on this, we want to bring in Jeff Thomas. He's a head of tech listings at the NASDAQ.

And Jeff, it's great to have you. I want to start off, since you are head of tech listings, just to get your take about this sector. Because it's been a big story in the market so far this year. Many of the large-cap means driving us to the record highs are listed on the NASDAQ. So how much of this IPO frenzy this week do you think is being driven by investor enthusiasm for technology?

JEFF THOMAS: I think you hit the nail on the head there. If you look at the NASDAQ 100 index, which is an index of the 100 largest companies on NASDAQ, it's up big this year. In fact, it's been ahead of both the Dow and the S&P 500 because it's got those innovative companies that are leading digital transformation, which has become so much more important during the times of the pandemic. As companies shift to remote workforces and needing to get things done digitally, we've seen a ton of inflows into the index as well as outperformance. And so those multiples just flow right through and motivate more companies to go public.

SEANA SMITH: And Jeff, it's interesting. Because a lot of the time when we see volatility in the markets, we see companies hesitant to go public, we just had recent volatility over the past couple weeks. But then there's also, I guess, the play there that you can see that the sell off last week is positive for the IPO market. Because some fear gets better pricing. What do you think of that?

JEFF THOMAS: Yeah, I mean, if you look at last year, volatility was extremely low, with the VIX staying under 20. And we kept kind of asking companies, hey, why aren't you more motivated to go public? And a lot of the answer was, there was a lot of capital in the private markets. And so that kind of gave companies the comfort to raise a private round. And the said, hey, I'm sure things will be fine when we're looking to go.

Now, you have a lot of companies who are looking to get out ahead of the election. So even though volatility is higher right now, you do have, you know, again, those rich multiples that companies want to get after. And I think they perceive that there could be even more volatility as you get closer to the election.

AKIKO FUJITA: Jeff, we've heard a lot of people talk about that tight window that companies are operating under before November and the election. But you mentioned off camera that you're also speaking to companies who are looking to potentially come to market after the election. What's the thinking on that front?

JEFF THOMAS: Well, again, I think it goes back to some of the valuations. And, you know, investors seem very open to these types of offerings. The average IPO is up over 30% this year. So there's a lot of demand. You have the fed pumping a lot of money into the economy. And so there's just a lot of cash out there. And then I think, you know, you're rolling into what could be an uncertain year in 2021, depending on the outcome of the election. So part of it might just be, hey, let's get something done by the end of the year.

INES FERRE: Jeff, Ines here. We've also seen a huge increase in SPACs going public. Are you looking at this trend as a long-term trend? Are we going to see even more SPACs next year?

JEFF THOMAS: Well, it's going to last at least two years, which is how much time a SPAC has to get a deal done. So there's over $35 billion in SPACs looking for acquisitions. And so we're talking to a lot of companies now about a triple track strategy. It used to be dual track, where you'd look at IPO or M and A.

But now you've got that third track of a SPAC where, instead of negotiating with underwriters and pricing an IPO, you can go and just negotiate with the SPAC and discuss, you know, the terms of that offer and how they'll bring you to market. So we think it's going to be at least a trend for the next couple of years. And, you know, depending on how the deal's perform, we'll see if those continue after that.

SEANA SMITH: Jeff, why do you think it's been so popular lately? I guess you can point to it with the rally that we've seen in the markets and the fact that we have seen such significant gains. But specifically in tech, I mean, is there a specific advantage of going the SPAC route in the tech sector, do you think?

JEFF THOMAS: Well, I think it gives the companies optionality. So just like a direct listing gives the company a different way to go to public, if they go public, if they don't need to raise capital today, they can use the direct listing, which uses an auction-based methodology. We also recently did a filing with the SEC to actually allow for a capital raise with a direct listing. And so I think a SPAC just gives a tech company another option so that they can determine the best path to the public markets for them, whether it's a traditional IPO, a direct listing, or a SPAC. All three will get you public. And it just depends which one's right for you.

SEANA SMITH: And then, Jeff, just looking ahead, just in terms of what we've seen. I mean, technology, obviously coming up in some of these IPOs this week and what's on deck over the next couple of weeks. As we look ahead to 2021, what sectors do you think are going to lead the way when we talk about companies going public?

JEFF THOMAS: We see a really strong class of enterprise software companies that are growing north of that $100 million average revenue run rate metric that a lot of companies in the software sector look for. This year, we've seen an enormous amount of health-care companies go public. It's actually been the largest sector, even larger than tech. And with all the focus on the pandemic and the great science and technology that folks are working on to try to keep us all healthy, I'd expect health care, and specifically biotech, to continue to be strong going into next year.

SEANA SMITH: All right, Jeff Thomas, head of tech listings at NASDAQ. Thanks so much for taking the time to talk to us. We'll talk to you again soon.

JEFF THOMAS: Thanks so much.