To IPO or stay private? Asia, or America?
In recent years, more companies are opting to stay private than to list in the US. Market conditions may be one (greater momentum shifts to Asia-Pacific, according to E&Y), public scrutiny the other. In fact, supply and demand of capital are changing nowadays, at the same time companies have different ways to create wealth and value.
Despite the absolute number of companies continuing to grow in the US, the number that is listed has plunged 45% since peaking 20 years ago. IPOs have dried up after the dotcom bust in 2000 and have never recovered. This piece from Fortune looks into some dynamics on each side.
If you are setting up or expanding your business, which path would you incline for your business empire?
Motivations for staying private:
- They don’t need your money! They got enough from funds or strategic investors
- Changes in business models – Mckinsey’s “asset-light” model. Look at the likes of Uber, Apple, Facebook that manufacture so little yet create so much value
- Ability to invest for the long term and focus on the business rather than on Wall Street
- There’re other new ways to raise money – E.g. SecondMarket, SharesPost, and Nasdaq Private Market, and cost of borrowing is low, at least for now
- Costly process to IPO: From underwriting to registration you loses average 14% of funds raised
- Little attention to top executives pay
- No agency problem
Motivations for getting listed:
- Raising capital while retaining control by way of multiple classes of shares
- Founders (Bill Gates) to cash out while retaining effective control
- Independent assurance to companies suppliers, employees and customers that it’s worth doing business with
- Attracting and keeping managerial talent – stock options
- Business has hefty capital requirements and shareholders prefer risk diversification
- Supply of capital is mushrooming, especially in China and India, creating the “savings glut” to fund prospecting companies