“Goldman Sachs, JP Morgan and Bank of America Merrill Lynch just won’t get out of bed in the morning for less than a $300 million offering”
Both in the US and the UK the reasons for the falling numbers of smaller companies IPOs have been widely discussed – see some of the links at the end of this post. For the perspective of a US equity capital market professional, see this article by the blogger The Epicurean Dealmaker, where he identifies these problems with the IPO market in the US:
- The minimum size for an effective IPO is at least $75 million: “but very few fast-growing companies ever need that much money to grow their business”.
- The large investment banks aren’t interested in offerings below $300 million: “They can’t even pay their defense counsels’ retainers with the commissions earned from such business…and for various reasons, smaller investment banks which could make a decent living off such fare are relatively few and far between”.
- And principally, a dramatic increase in the minimum size of investment that an institutional investor in equities can entertain: “a portfolio manager must think long and hard whether he wants to spend the time and energy investing in, following, and adding to a position in a company in which he will be limited to no more than a 10% portion of the initial public offering.Especially if his initial investment in a $75 or $100 million IPO is 10% or less of his ideal average size portfolio holding”.
“Public financial markets— and the institutional investors who dominate them — have become too large to be an effective source of late-stage growth equity capital for most companies.”
The JOBS Act and crowdfunding
As for the alternatives to IPOs – being the various legislative attempts in the US to loosen the regulatory constraints in smaller offerings and to encourage crowdfunding:
” I suspect [the JOBS Act] it will have very little effect on mainstream, Wall Street underwritten IPO business at all. But I must agree with Matt Levine of Dealbreaker when he observes that
either the SEC registration process is necessary to protect investors, in which case it’s especially necessary for smaller newer companies, or it’s not, in which case it’s no more necessary for large companies than for small ones.
It is a little disconcerting to me that bipartisan knuckleheads in Congress seem intent on reducing regulation, protection, and oversight in retail finance at the same time they are putting other parts of my industry into testicle clamps. But I suppose political campaigns just don’t pay for themselves.”
See also: What is crowdfunding?
The future of London’s IPO market: Recommendations from the London Stock Exchange
London’s shrinking stockbroker sector
“On ramp”: US legislation proposed to encourage smaller company IPOs
Encouraging companies to float: Report of the U.S. IPO taskforce
Friendly Corporate PSL
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