June 16, 2017

Where Have the Public Companies Gone – and Why?

As Liz recently blogged, it’s no secret that public companies have been declining nearly as fast as honeybees – & in some circles, their endangered status is just as disquieting.  However, this EY report says we all need to chill out about this. Here’s an excerpt from the intro:

US public companies are fewer in number today than 20 years ago but much larger by market capitalization. They are also more stable, and delisting rates are much lower than immediately following the dot-com boom. In general, the total number of domestic US-listed companies has stabilized, especially post-2008, and the number of foreign companies listed on US exchanges has steadily increased over the same time.

A lower number of IPOs than during a boom-bust cycle should not automatically be viewed as problematic. There is ample evidence that today’s IPOs are creating stronger, healthier companies than at any time in the past. Growth companies choosing to sell shares to the public today are typically stable and have solid prospects for growth. Today’s healthy IPO market is a stark contrast to the post-dot-com bubble years, when companies with uncertain business prospects that went public, often shortly after formation, later collapse.

Is it a good thing that we have fewer public companies that are larger and more stable?  As “The Economist” notes, how the market came to be dominated by those larger & more stable companies matters too:

Some firms get bought by private-equity funds but most get taken over by other corporations, usually listed ones. Decades of lax antitrust enforcement mean that most industries have grown more concentrated. Bosses and consultants often argue that takeovers are evidence that capitalism has become more competitive. In fact it is evidence of the opposite: that more of the economy is controlled by large firms.

As for the previous IPO boom & bust cycles, it’s hard to defend the bubble, but is it really a bad thing that “companies with uncertain business prospects” were able to go public during hot markets?  Some win; most lose – you pay your money & you take your chances. An appetite for some risk isn’t such a bad thing.

So… Is Private the New Public?

No sooner do I finish my rant about the decline of public companies than Prof. Ann Lipton blogs that “publicness” is now increasingly an attribute of a lot of private companies.  Here’s what she means:

“Publicness,” a concept first developed by Hillary Sale, refers to the general social obligations a corporation is perceived to have toward the public in terms of transparency and regularity of operations.

Uber is a private company, but as its various recent troubles demonstrate (and demonstrate and demonstrate and…),it is increasingly viewed through the lens of publicness – and is responding as though it recognizes, and hopes to meet, those obligations.

The growing private resale market for shares in high-profile private companies is blurring some of the lines between “public” and “private” companies.  So perhaps it’s not surprising that in today’s environment, a company like Uber is perceived by the public to have certain duties in terms of ethics and responsible governance – despite not having public shareholders.

Small Cap IPOs: First Reg A+ Listing on NYSE.MKT

Here’s a little good news on the IPO front – a few months ago, I blogged about medical device company Myomo’s efforts to obtain a listing on the NYSE.MKT in conjunction with its Reg A+ IPO.

This Duane Morris blog reports that the company completed its offering and became the first Reg A+ IPO issuer to officially begin trading on an exchange.  This excerpt provides an upbeat take on the results of Reg A+ & this listing milestone:

The Reg A+ rules permit non-listed companies a “light reporting” option after their IPO, further reducing costs and burdens as a public company while retaining strong investor protections. The SEC also has given extremely limited review to these filings, and has reported an average of 74 days from initial filing to SEC approval or “qualification.” As a result, companies are reporting a speedier, more cost-efficient and simpler process in completing their Reg A+ offerings than with traditional IPOs.

To date, the SEC has reported that dozens of Reg A+ deals have been consummated and hundreds of millions of dollars raised since the SEC’s final rules were implemented in 2015. Only a handful of these companies, however, have commenced trading their stock. To have completed the first Reg A+ deal to trade on a national exchange, therefore, is a very significant development for those working to redevelop a strong new IPO market for smaller companies.

John Jenkins