Looking Behind the Declining Number of Public Companies

The capital markets landscape has changed considerably over the past two decades, including the expansion of private capital markets and related regulatory changes.

US public companies are fewer in number today than 20 years ago, but much larger by market capitalization. This lower number of IPOs should not automatically be viewed as problematic, as there is ample evidence today’s IPOs are creating stronger, healthier companies than at any time in the past.

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 collapsed.

Some observers raise concerns about the prospect of companies leaving the US to list in international markets and foreign companies potentially choosing other markets over the US. Those fears, however, are not borne out by the data. Attracted to the stability and liquidity of US capital markets, foreign companies today overwhelmingly choose the US when they list outside of their home markets. Companies based in the US rarely elect to list elsewhere.

Increased market volatility stemming from interest rate and geopolitical uncertainty likely drove down IPO numbers in 2016. But one major and sometimes overlooked driver is the dramatic growth in private capital. Today’s emerging companies have more options than ever to find private financing for a longer term and in greater amounts.

Legislation enacted over the past five years has made it easier for emerging companies to stay private longer by relaxing certain regulatory requirements and encouraging more private financing. Investors with large amounts of capital — including traditional venture capital and private equity as well as large corporate and institutional investors — have turned to the private market in search of investment opportunities in high-growth companies.

During a live webcast on June 15, EY will further explore the trends above, which can also be found in our latest analysis, Looking behind the declining number of public companies.

This session explores what lies behind:

• The decline in the total number of US public companies
• The attractiveness of US public capital markets today
• The growing vibrancy of private capital markets
• Recent policy actions impacting capital formation