November 20, 2018

The Death of the IPO

“One week this summer, the Nasdaq stock market listed five recent initial public offerings, including Sonos, the home-audio company, and Vaccinex, which makes a promising cancer drug. That same week, an investor looking at Nasdaq’s Listing Center would have seen the names of 16 stocks set to disappear. The reasons for the delistings varied. Synchronoss Technologies, a software company, had failed to file financial reports since February 2017. Abaxis, a veterinary-diagnostics firm, was being acquired by Zoetis. Capella Education was merging with Strayer Education (both operate for-profit schools).

The week was representative of the past two decades. In 1997, during the dot-com boom, there were 8,884 companies listed on U.S. exchanges, primarily on Nasdaq and the New York Stock Exchange. Since then, the number has been cut by more than half. The pace of decline has been gradual, unaffected by the dot-com bust, the financial crisis, or subsequent recoveries. A two-decade chart showing the number of public companies looks like a slide at a children’s playground, slowly but surely going down.

Should we be concerned? Stock-exchange officials certainly are. Last year, Thomas Farley, then the head of the NYSE Group, said the drop “may severely limit [companies’ opportunities] for economic growth, hiring, and wealth creation.” Earlier this year, in her introduction to a white paper, Nasdaq’s CEO, Adena Friedman, warned that if the trend continues, “job creation and economic growth could suffer, and income inequality could worsen as average investors become increasingly shut out of the most attractive offerings.””

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