Gusher of private capital, IPO slump and merger boom cause listings to plunge; ‘There’s no great advantage’
With interest rates hovering near record lows, big investment funds seeking higher returns are showering private companies with cash. Companies also are leaving the stock market in near-record numbers through mergers and acquisitions.
.. The U.S. is becoming “de-equitized,” putting some of the best investing prospects out of the reach of ordinary Americans. The stock market once offered a way for average investors to buy into the fastest-growing companies, helping spread the nation’s wealth. Since the financial crisis, the equity market has become bifurcated, with a private option available to select investors and a public one that is more of a last resort for companies.
.. The number of U.S.-listed companies has declined by more than 3,000 since peaking at 9,113 in 1997
.. “There’s no great advantage of being public,” says Jerry Davis, a professor at the University of Michigan’s Ross School of Business and author of “The Vanishing American Corporation.” “The dangers of being a public company are really evident.”Among them, Mr. Davis and others say: having an investor base that clamors for short-term stock gains and being forced to disclose information that could be useful to competitors.
.. “I thought the public markets were too harsh on companies that were creating something that doesn’t exist,” he says, citing the then-nascent cloud-computing industry. “It’s tough to answer every quarter for something when you don’t have all the answers because it’s still unfolding.”
.. Venture-capitalist Bill Gurley sees a bubble in the private markets. He predicts investors will lose significant amounts in many closely held companies valued at $1 billion or more,
which currently stand at 154, according to Dow Jones VentureSource. “History would suggest that it’s a real possibility,” he says.