The Securities and Exchange Commission is partnering with New York University on an event tackling the topic of the declining initial public offering market (IPO). Organized under the auspices of the SEC’s Division of Economic Risk Analysis (DERA), the half day dialogue is being held at NYU’s Salomon Center for the Study of Financial Institutions and is open to the public. Entitled “Reviving the U.S. IPO Market”, the event will include representatives from the SEC, academia and industry professionals including Thomas Farley, President of NYSE Group and Chris Cooper Global CFO of Sequoia Capital.
The US IPO market has been in chronic decline for years. The level of IPOs in 2016 was below 2015 and 2017 may be no better. There are multiple theories as to why companies are avoiding going public but many industry participants point to the fact the cost of going public alongside the mandated ongoing reporting requirements has pushed most companies to remain private for as long as possible. Excessive rule making by Congress and regulatory agencies targeting public companies have come with an unexpected cost.
This has been exacerbated by the fact there is an ocean of private capital that is constantly seeking early returns. Promising companies do not need to become reporting companies until they cross a threshold or the private money runs out.
One consultant recently explained;
“Companies continue to pursue private capital sources instead of an IPO, creating liquidity for their shareholders and employees and raising capital to expand. They will enjoy the benefits of an IPO without taking on the risk or expense of going public.”
Some observers believe IPOs have become more of an exit opportunity than an entry point for investors to participate in fast growing firms. Recent valuations have supported this thesis.
Newer exemptions, such as Reg A+, have lowered the barrier to becoming a company that can publicly trade securities. Simultaneously, policy makers have recognized the fact that a dysfunctional public offering market hurts the economy. The question remains as to what, if anything, policymakers will do to address this disconnect. If you are interested in hearing more check out the DERA/SEC event in New York City on May 10th.