ARE PUBLIC COMPANIES DISAPPEARING?
Where did all the public companies go??
A recent report by the Center for Research in Securities Prices indicates that the number of publicly traded companies has decreased dramatically since 1996. Back then, 8,000 companies were traded on U.S. stock exchanges. Now, the number is only about 3,700. Where did the others go??
Some succumb to bankruptcy (e.g., Bed Bath & Beyond Inc., Party City, Inc.). Others were subject to mergers or acquisitions. But where are the substitutes?? Isn't the creative-destruction of capitalism supposed to add companies where others depart?
It seems now that up and coming companies have decided to stay private longer and to avoid all of the regulatory burdens attendant to public companies. And there's quite a pool of private funds available to keep them growing.
Private equity funds have proliferated over the years and have provided sources of equity capital permitting successful firms to continue to grow and profit without public financing. In addition, the current environment has tended to depress the perceived value of companies "going public". So, last year (2022), the U.S. market for initial public offerings of securities was only $8 Billion.
That's a 32-year low!
Why is that? From my perspective, it's a combination of depressed valuations, the costs of compliance with U.S. securities laws and the transparency and potential liabilities attendant to public listing. There are other alternatives that can be much more attractive for successful companies.
One is simply remaining as a private company until some investor or private equity firm presents an offer to buy. Another is to seek an offer from a larger company in your market that is looking to expand its offerings.
Large multi-national companies are frequently looking for assets to complement their portfolios of products and services. They are sources of equity capital that is more patient than the typical venture capital fund. So, companies that can establish collaborative relationships with like-minded large corporations can increase their potential pre-money valuations and accelerate their monetization of their companies. For appropriate companies with promising technologies, this can be a great exit alternative to a public offering of securities.
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