Felix mentioned a discussion at Davos about the end of the era of public companies. In a follow up post he features a few charts (incorrectly attributed to SecondMarket) which shows the decline in public listings of issues on the NYSE and Nasdaq:
I thought the charts looked familiar so I looked through my research folder and found the original source. The charts are in fact excerpted from a very worthwhile white paper published in November 2009 by Grant Thornton (written by David Weild and Edward Kim) titled “A wake-up Call for America”.
Weild and Kim meticulously detail the how’s and the why’s for the decline of the initial offerings in public capital markets in the US for the past 10 years. I’ve mentioned the importance of the IPO market as a gauge of market health and sentiment but fundamentally, it is the heart that pumps new liquidity and corporations into the US economy. Without it, we wouldn’t have new companies, new technologies, new jobs, etc.
What we don’t see when we simply measure IPO’s is the number of issues that are delisted every year from exchanges. So to get a true measure we need to look at the replacement or equilibrium level as shown by the net number of new issues listed (IPOs) minus lost listings. According to data compiled by Weild and Kim, US exchanges have been operating below replacement levels since 2003.
If we look at a GDP relative measure, things look just as bleak. And when we compare the US capital markets with international markets the crisis is laid bare as other jurisdictions such as Hong Kong, Italy, Australia, and Germany have not been effected and instead have seen growth in both the measure of nominal listings and in measures relative to GDP.
The report itself is well written and definitely worth your while. The discussion may seem dry and removed from the day to day activity of the market but in reality, it cuts to the core of the health of the US market. This is an extremely important issue that is still under the radar for most and it really shouldn’t be. It is an issue that deserves more public scrutiny and discussion because left unchecked it could have serious and irreparable effects on the US capital markets.
Felix quotes Barry Silbert of SecondMarket speaking supportively of private exchanges like his, saying “the company gets to decide who the buyers and sellers are, and what information they want to disclose to investors.” You can’t blame Silbert for trumpeting his own business but I’m reminded of this from Edward Kim: “It is said that if the IPO market has a cold, the 144A market will catch pneumonia.”
After the jump you’ll find the original report. As well, Weild and Kim co-authored a follow-up on June 2010 which you can read here: Market Structure and the IPO Crisis.