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December 12, 2006
Are We Under-IPO-ed?
Some folks are arguing to me via email that the real upshot of all this private equity activity is that we are under IPO-ed. In other words, has the combination of failed dot-coms, plus private equity buyouts, plus Sarbanes-Oxley, left us with too few public companies?Good question. So, how would we know? Well, you could look straight up at the NYSE listing data, which shows U.S. (non-foreign) NYSE listings peaked at 2,722 companies in 1998. Today we are 15% lower, with "only" 2,315 NYSE-listed companies, which represents 412 fewer firms.
That's kinda interesting, but it doesn't tell you much. Maybe we had too many listed companies in 1998, and maybe we still have too few now. It's hard to know from this data.
Just for fun, here's another approach. How about normalizing the number of listed companies in any given year against (real) U.S. GDP? That way you've got something to test listings against. The result? See the following figure, which seemingly shows that, if anything, we are over-IPO-ed.
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Interesting. Wonder if you might get different results by comparing the aggregate market cap of all publicly listed companies versus the GDP (as opposed to the number of public companies).
I think you may be backwards on this one. Your chart implies that an average company in 2005 is "responsible" for $4B of GDP vs $1B of GDP in 1929. If you accounted for inflation, that means that each public company in 2005 is responsible for 4x the amount of GDP than 75 years ago.
This tells me we need MORE public companies and are therefore under-IPOed.
Hope I am interpreting your chart and words correctly.
the gdp figures are real, not nominal, so your concern, while potentially valid, doesn't apply.
This chart doesn't take into account the fraction of GDP accounted for by public companies, and the amount of debt financing relative to equity financing, both of which have chancged a bit since 1929.
Doesn't this chart suggest the opposite? If the amount of real GDP per listed company is high, doesn't that suggest that there should be more listed companies. Historically, if we want this chart to revert to the mean, shouldn't we increase the denominator (listed companies)?
Obviously theres a LOT this chart doesn't take into account. It's a back of the envelope type deal.
But I agree with the commenter who doesn't see it Paul's way. I don't understand how have more real GDP per NYSE company would mean that we are "Under IPO-ed"?
Overall, the supply of equities has gone up immensely (don't forget the access to non-US equities, as well as the NASDAQ), but so has the GDP. But who knows if this measure matters at all?
I'd guess that the market for IPOs is actually the best current measure. At this point in time, people aren't clamoring for more new issues.
But since the market in general has done pretty well lately, there is increasing demand for equities, and eventually that will translate into more IPOs, I'd think.
So Paul's 2007 prediction could well be true - more IPOs in 2007.
Can't ignore the NASDAQ!