Fewer Public Companies = Fewer Opportunities
The number of publicly traded U.S. companies peaked in 1996 at 7,322. Today there are just over 3,700, according to data from Wilshire Associates (data does not incldue the nearly 10,000 securities traded on the OTC Markets).
The U.S. population has risen nearly 50% since 1975, and real GDP has tripled. But the number of public companies has declined 21%.
Companies that do go public are waiting longer to do so. According to research from Wellington Management, “Companies are waiting longer to IPO, stretching on average from 4.6 years after founding to go public from 1990–2001 to 6.5 years from 2002–2015.”
According to Morgan Housel, of The Collaborative Fund, points out that fewer companies are choosing to go public because markets have become more focused on, and unforgiving in, the short-term.
Investors also have fewer opportunities for returns because high growth companies are staying private longer. Instead of the broad range of market investors realizing returns,
private investors (venture capital) realize the largest percentage returns - the kind of returns an investor makes when a company goes from startup to billion dollar company (ie. Snap, Inc.).
Fewer IPOs and public companies leave companies and investor missing out. Companies that could have broader and deeper access to capital in public markets stay private because public markets have been so unforgiving, and public investors are stuck with a less-dynamic set of companies to invest in at the very moment large funds and individuals are struggling for returns.
One antithesis to this is the microcap space where public market investors can still find "hockey stick" returns. The JOBs Act may lead to more early stage companies going public and thus greater opportunity for market investors.
Acquis Capital is a private investment fund that specializes in acquisition and project finance. Acquis invests in small public and private companies to fund acquisitions or other projects that create immediate tangible value. For more information please contact us or follow us at @MicroMnA.
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