It isn’t just the economy that’s putting the brakes on the IPO market. The latest from the FT suggests a wide range of factors, including the global market for stock exchanges and the high costs of going and staying public. We pulled seven nuggets from the article that will blow your mind:
1. There are fewer listings: according to the FT, the number of ‘fresh companies listing’ has declined ‘sharply’ in Europe and the US over the past five years. In London, the number has fallen by more than 50 per cent.
2. The ecosystem is more complex: meanwhile, the companies involved in servicing those opting to list on stock exchanges have ‘morphed into a complex ecosystem.’
3. The exchanges have changed: for-profit entities, they are driven to develop new revenue streams, bundle more services (such as investor relations-related tools) and merge. Derivatives and high-frequency trading are on the list these days.
4. The IPO isn’t what it used to be: it isn’t just about channeling capital to smaller companies – the costs are too high, as is the insistence on liquidity. Professor John Coffee of Columbia University Law School, tells the FT, ‘There is a need to design alternative capital raising mechanisms for the smaller company that does not have the prospective capitalisation of a Facebook.’
5. Jobs hang in the balance: in the 1970s, the FT reports, 92 per cent of all jobs created by public companies came post-IPO. Over the past dozen years, though, the average number of IPOs per year has only been 192 (down from 547 through the 1990s until 1999).
6. The extinction of small IPOs: the FT reports that IPOs ‘designed to raise less than $50 mn are all but extinct.’ This, according to Grant Thornton, may have cost the US 22 mn new jobs.
7. It takes longer and longer: in the early 1980s, it took a company only 4.8 years to go from start-up to IPO. Now, it takes 9.4 years. Companies are staying private longer, even if investors are forced to wait for their exits. Regulation and cost contribute to the near doubling of the time it take a company to go public, as well.