Debate grows over reasons for decrease and what can be done to arrest the slide
Regulation has played a role in shrinking the pool of US-listed companies, but issues such as a white-hot market for private funding and mergers and acquisitions may be bigger factors, according to investors, lawyers and other market participants.
A drop in the number of listed companies in the US coupled with a slow period for new listings has fuelled debate over what has caused the decrease and calls for easing the regulatory burdens for companies seeking to list. That includes talk of a “Jobs Act 2.0”, building on the first set of rules that eased regulations for listings. “Regulation is part of the issue, but not the issue,” Steven Bochner, partner at Wilson, Sonsini Goodrich & Rosati said at conference on the topic sponsored by the Securities and Exchange Commission and New York University Salomon Center for the Study of Financial Institutions. The conference followed the recent confirmation of Walter “Jay” Clayton as chairman of the SEC. In his Senate confirmation hearing, Mr Clayton signalled interest in addressing the listings slump. “In recent years, our markets have faced growing competition from abroad. US-listed IPOs by non-US companies have slowed dramatically,” he said. “More significantly, it is clear that our public capital markets are less attractive to business than in the past.”
Also this week, he appointed William Hinman — a veteran Silicon Valley lawyer who advised on the IPOs of Square, the payments company, Alibaba, the Chinese ecommerce giant, and Facebook — to lead the regulator’s corporate finance division. The latest crop of hot tech companies, such as Airbnb, have been able to raise billions of dollars at attractive levels, swelling the herd of so-called unicorns, or companies that have achieved valuations of $1bn or more without going public. Meanwhile, large companies have the cash to buy out small upstarts that may find it hard to compete with larger rivals. The number of listed companies in the US has fallen to 3,603 as of the end of February from more than 7,000 in the dotcom bubble of the late 1990s and 4,432 in 1977, according to Whilshire Associates. Ten years ago there were about 4,900 listed companies. The US market for IPOs has also experienced a slowdown. While business is picking up in 2017 with the high-profile listing of Snap, the owner of Snapchat, 2016 was the slowest year for US listings since the aftermath of the crisis in 2009. Thomas Farley, president of the New York Stock Exchange, pointed out areas such as the rise of activist investors and market focus on short-term results as among the things that spook private companies about listing. “They are afraid of what being a public company means for them and their businesses,” he said.
While rules like Sarbanes Oxley, which was passed after the fraud scandals such as Enron and requires robust internal controls, “did a lot of good”, complying can be time-consuming and expensive for small companies assessing the public markets, Mr Farley said. “For Coca-Cola, sure they can do it,” he added. Still, participants largely agreed that venture-backed tech companies, including the large unicorns, are ultimately destined for a “liquidity event” — a listing or a sale — because early investors want to cash out on the investment. “It is going to happen. There are going to be exits, but it is hard to predict when it will happen,” said Chris Cooper, global chief financial officer at Sequoia Capital. Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don’t cut articles from FT.com and redistribute by email or post to the web.