5 Curious Charts On Corporate America And The Decline Of The IPO

Something weird happened in the last couple of decades. The number of companies undertaking an IPO (Initial Public Offering – the process of raising capital and listing on the stock exchange) in America went from boom to bumble. Not exactly, bust, but far from the hectic pace of activity in the 1980’s and 1990’s. There’s a few good reasons why this has happened, and the charts below provide some perspective on this trend, and insight into the business life cycle and the investment landscape in the USA.

The key conclusions and takeaways are: 

-US IPO activity has been running at a relatively subdued pace after booming in the 1980’s and 1990’s.

-Part of the decline can be attributed to a lower number of foreign companies IPO’ing in America.

-Part of it may even have to do with the capture of the retail investment market by investment funds.

-A big part of it is likely down to the shrinking pipeline of new firms as the startup rate is near a record low.

-Finally, a key aspect is the apparent trend for firms to stay private, or opt for the private equity route instead of IPO.

1. Annual Number of IPOs:  The first chart is the one which prompted this article. It shows the annual number of IPOs in the USA from 1960 through to 2017. Probably the biggest standout on this chart is how after booming in the 1980’s and 90’s US IPO activity has settled in to a relatively stagnant pace.There are a few theories as to why this has happened, and the next 4 charts provide some perspective.

2. Number of Foreign Company IPOs in the USA:  Although only averaging around 10% of deal flow in the 1990’s, foreign company IPOs were booming in absolute terms, peaking at 75 in the year 2000 (or 20% of all IPOs in the US that year) – according to Jay R Ritter. As the chart below shows, in years subsequent the number of foreign company IPOs has been relatively less active, although averaging around a fifth of all US IPOs – with Chinese companies making a strong showing. So Foreign companies helped lift the numbers in the 1990’s and can explain a small part of the decline in listing activity.