Pretty standard practice to delay IPOs during a chilly market. We delayed IPO from summer 2011 to winter 2011 at my previous employer for this reason (remember the debt ceiling crisis nonsense?)
Chilly market? We're less than 100 points off the all time high in SPX (which was set last year). You could say the bull run is in its last stages, but it's far from chilly.
Though as another another article today mentioned https://news.ycombinator.com/item?id=11419281 much of the SPX is driven by companies buying back their own shares out of profits. It may be chillier for loss making unicorns that can't do that - see Box etc.
There is nothing more chilly than markets going up and down ~20% within 2 months with no major changes in fundamentals (or global/macro situation for that matter).
I urge you to compare the Q4 2015 -- Q1 2016 SPX chart and Q3-Q4 2011 SPX chart. 2011 experienced a similar sharp drop to recovery that we're going through right now that had a similar drop in IPOs.
According to the FT it is simply part of a greater trend.
"This is a sign of US strength, not weakness. In many countries going public may be the only way to raise permanent capital, and banks the only way to finance investments, but the US has a sprawling venture capital industry, deal-hungry private equity firms, relatively healthy banks, a private placement market that is the envy of many other countries, and the most vibrant corporate bond market on the planet."
Wealth is tremendously concentrated into just a few countries, yes. Those countries consider that concentration a strength, because it allows them to do things that countries with a lower concentration of wealth cannot even contemplate.
By what definition can it be considered a weakness?
I think parent comment means the concentration of wealth to certain people within a country relative to others within that same country.
That is, already-wealthy VCs are still seizing lucrative opportunities on private markets (as pointed out). It's just the public that isn't able to participate because companies aren't going public.
Not trying to say VCs are holy, but... they are investing, in large portion, the public's money, just in the private marketplace. Pension funds, insurance, family offices, etc., are all active in venture, and that's all "our money" as well.
At the same time, going public is usually one of the worst things a company can do for itself. With few exceptions, instead of being ok with mild profits, shareholders demand extreme amounts of profit and growth, and will bitch and moan and threaten to takeover if that doesn't happen.
Amazon is in great financial position, but they reinvest all net revenue. So I guess they don't qualify as constant profit (now) but they count as growth, with eventual high profit
Kind of, because they're still making buttloads of money. I also don't know offhand what percentage of stock Bezos and Co own. Google is able to get away with a lot of this because 1). They still make buttloads of money, and 2). Larry and Sergei own the majority of stock (at least I'm pretty sure they do).
A strength or an indication of historically low interest rates? The money to pay off the VC's can be borrowed very cheaply, if not by the company itself then by other investors with an interest in a longer-term investment.
Beyond that, the reason private equity firms are so "deal-hungry" is low interest rates put a damper on returns from all sources.
Is this indicative of a lack of faith in the banking industry?
Speculative investments are on a steep decline as well, with many folks buying into plain-jane savings accounts with sub-1% rates of return rather than more exotic financial tools.
Will we see reforms to woo them back, or is the Federal government generally unconcerned (other than paying lip-service to the banks)?
The last years/decades have made pretty clear that the financial sector will happily screw over their customers whenever they can. No wonder who are not financial experts prefer safe investment where they at least don't lose money.
It's said that the Sarbanes–Oxley Act's requirements for publicly traded companies made going public less desirable for many concerns, and this has resulted in fewer public offerings over the last 14 years.
I've thought for a while that SarbOx created the unicorn. In the end all it accomplished was to exclude the public from the best growth stocks.
The problem with SarbOx is complexity, overhead, and ambiguity. It would have been possible to fix some of the excesses of revenueless dot.coms by adding a few simple criteria, but instead we added a ton of burden and made public markets undesirable.
I've also wondered if SarbOx might not have been a factor in real estate hyperinflation by driving capital away from stock markets. It's gotta go somewhere.
Taxing revenue would cause massive consolidation. Right now you might have a farmer sell their crop to a wholesaler, who then organizes it along with the output from other farmers and sells it on to the supermarket who in turn sells it to you. If you taxed revenues rather than profits, you'd end up taxing the total value of the goods 3 times rather than 1.
Ultimately, those companies would all merge or be bought out until they were one company to just pay taxes once.
"gov't taxes corporations' profits and individuals' revenues"
Say what? As I understand it, a basic theme of income taxation for me as an individual in the USA, and indeed most (perhaps all?) western countries is that if I buy something for B and sell it for S, I get taxed for S-B income. And as I understand it, that basic theme really is the way that it works for a lot of businesspeople, though they may need to be quite careful to jump through certain hoops (particular kinds of recordkeeping e.g.) to ensure that it works that way reliably. And it is roughly the way it works for individuals not ordinarily considered businesspeople when they buy and sell things like residences and securities, although it's sometimes wrapped up in extra weirdness like special real estate tax categories and short term vs. long term security capital gains.
What country or countries are you referring to?
Or are you just referring to the fact that employees employment expenses are not as eligible for deduction as many business expenses, securities transactions, and real estate transactions? (And, um, bringing in "corporations" for some rhetorical reason that I can't fathom?) That would make it roughly true to say "taxes business profits but taxes labor revenues." But to characterize that as "gov't taxes corporations' profits and individuals' revenues" seems more nearly false.
Also, that is a radically different tax treatment of labor revenues and business revenues, but you don't explain what you find particularly curious about that. For good or for ill, radically different economic policy treatment of labor revenues and business revenues is pretty widespread, not limited to tax policy. E.g., consider how business monopolistic collusion to restrict supply is broadly forbidden even when the collusion is wholly voluntary, while labor unions are not just allowed to collude voluntarily to restrict the supply of labor but supported in actively preventing rivals from providing a supply of labor.
It's just an outlier to the trend. So "exclude" in this case is just a qualifier to the statement and doesn't reflect an actual desire to treat the company differently.
Okay, but the fundamental thing that differentiates startups is that outliers dominate the results and change their aggregate properties. You might as well say that Scuzzball Fire Insurance honored all of its obligations, except the few houses that burned down.
Traditionally (before the 90s) stock index growth was driven by retirement investment, which is driven by demographics (more workers or richer workers). Recently, most dollars added to public exchanges come from corporate buybacks (companies seeking to go private).
The only disadvantage to private investment is liquidity. Otherwise, it's way better to be non-public (less hostile takeovers, less activist investors, less regulations, less mandatory transparency, less managing for 1Q instead of 5Y).
This feels like more evidence for a tipping point between capital and labor.
Buybacks are driven solely by a desire to appease shareholders by increasing earnings per share in a seemingly risk-averse manner. However, buybacks tend to only happen when the valuation is already sky high. Only a handful of companies have the discipline to buy back stock when the valuation is low and pursue a secondary when it's high.
So all the people who make the buyback decisions are paid in stock. It is in their own self interest to buy back as much stock as possible, and inflate the per share price, right?
Shareholders like buybacks over dividends for tax reasons. You don't pay taxes on a stock's appreciation until you sell it, so the investor chooses when the taxable event occurs.
I'm planning on liquidating most of my investments after I retire and have no wage income, so I save a lot of money when a corporation does buybacks instead of disbursing dividends this year when I'm employed and in a higher tax bracket.
Buybacks (rather than dividends) are just about taxes. Suppose a company worth $100 (100 shares outstanding) wants to return $10 in cash to shareholders. Two choices:
a) Dividends. Each shareholder receives $0.10/share in taxable dividends payable in the same calendar year. Share price drops to $0.90/share.
b) Buyback. The company buys 10 shares, leaving share price at $1 but now only 90 shares outstanding.
With option (a) each shareholder must pay taxes on $0.10 in the same tax year. With option (b), shareholders can choose not to pay taxes immediately by not selling. Also taxes are paid on ($1 - cost basis) which might be a lot less than $0.10/share.
This is only evidence of the fact that people will structure their transactions to avoid taxes. Without taxes favoring buybacks they would be identical to dividends.
A change in behaviour in this regard might distort comparisons, if people are e.g. comparing the S&P 500 now to 10 years ago and not doing proper total return accounting (which, sure, is a dumb thing to be doing in any case).
You do realize that you are asking the SEC to create a class of "Special investors" that would have special rules. This is a horrible and undemocratic idea.
64 comments
[ 3.2 ms ] story [ 153 ms ] threadThe last time IPOs looked like this was in the starting (and also end) of 2008, just before (and after) the market crashed.
So, we've got a 7 year period of nearly steady growth in IPOs, and then a cliff over the past year.
A "chilly market" often leads to a crash, due to the vicious circle it creates.
"This is a sign of US strength, not weakness. In many countries going public may be the only way to raise permanent capital, and banks the only way to finance investments, but the US has a sprawling venture capital industry, deal-hungry private equity firms, relatively healthy banks, a private placement market that is the envy of many other countries, and the most vibrant corporate bond market on the planet."
http://www.ft.com/intl/cms/s/0/534b5560-f7d1-11e5-96db-fc683...
https://www.google.com/search?q=IPO+market+decrepit+as+going...
By what definition can it be considered a weakness?
That is, already-wealthy VCs are still seizing lucrative opportunities on private markets (as pointed out). It's just the public that isn't able to participate because companies aren't going public.
Publicly traded companies are one of the most important pro-egalitarian components of Capitalism.
Capitalism eventually buys the market. There has never been a different outcome.
Beyond that, the reason private equity firms are so "deal-hungry" is low interest rates put a damper on returns from all sources.
Speculative investments are on a steep decline as well, with many folks buying into plain-jane savings accounts with sub-1% rates of return rather than more exotic financial tools.
Will we see reforms to woo them back, or is the Federal government generally unconcerned (other than paying lip-service to the banks)?
The problem with SarbOx is complexity, overhead, and ambiguity. It would have been possible to fix some of the excesses of revenueless dot.coms by adding a few simple criteria, but instead we added a ton of burden and made public markets undesirable.
I've also wondered if SarbOx might not have been a factor in real estate hyperinflation by driving capital away from stock markets. It's gotta go somewhere.
1. Regulate market capitalization of corporations
2. Tax corporate revenues, not profits
Ultimately, those companies would all merge or be bought out until they were one company to just pay taxes once.
Say what? As I understand it, a basic theme of income taxation for me as an individual in the USA, and indeed most (perhaps all?) western countries is that if I buy something for B and sell it for S, I get taxed for S-B income. And as I understand it, that basic theme really is the way that it works for a lot of businesspeople, though they may need to be quite careful to jump through certain hoops (particular kinds of recordkeeping e.g.) to ensure that it works that way reliably. And it is roughly the way it works for individuals not ordinarily considered businesspeople when they buy and sell things like residences and securities, although it's sometimes wrapped up in extra weirdness like special real estate tax categories and short term vs. long term security capital gains.
What country or countries are you referring to?
Or are you just referring to the fact that employees employment expenses are not as eligible for deduction as many business expenses, securities transactions, and real estate transactions? (And, um, bringing in "corporations" for some rhetorical reason that I can't fathom?) That would make it roughly true to say "taxes business profits but taxes labor revenues." But to characterize that as "gov't taxes corporations' profits and individuals' revenues" seems more nearly false.
Also, that is a radically different tax treatment of labor revenues and business revenues, but you don't explain what you find particularly curious about that. For good or for ill, radically different economic policy treatment of labor revenues and business revenues is pretty widespread, not limited to tax policy. E.g., consider how business monopolistic collusion to restrict supply is broadly forbidden even when the collusion is wholly voluntary, while labor unions are not just allowed to collude voluntarily to restrict the supply of labor but supported in actively preventing rivals from providing a supply of labor.
You've put it much better than I did. What I find curious (and insulting) is that the government effectively values my time and energy at $0.
http://tech.eu/features/9202/european-tech-funding-q1-2016/
This is a bubble, popping.
[1] http://www.renaissancecapital.com/news/tech-sector-sell-off-...
The only disadvantage to private investment is liquidity. Otherwise, it's way better to be non-public (less hostile takeovers, less activist investors, less regulations, less mandatory transparency, less managing for 1Q instead of 5Y).
This feels like more evidence for a tipping point between capital and labor.
FTFY: s/shareholders/management with incentive options/g
I'm planning on liquidating most of my investments after I retire and have no wage income, so I save a lot of money when a corporation does buybacks instead of disbursing dividends this year when I'm employed and in a higher tax bracket.
a) Dividends. Each shareholder receives $0.10/share in taxable dividends payable in the same calendar year. Share price drops to $0.90/share.
b) Buyback. The company buys 10 shares, leaving share price at $1 but now only 90 shares outstanding.
With option (a) each shareholder must pay taxes on $0.10 in the same tax year. With option (b), shareholders can choose not to pay taxes immediately by not selling. Also taxes are paid on ($1 - cost basis) which might be a lot less than $0.10/share.
This is only evidence of the fact that people will structure their transactions to avoid taxes. Without taxes favoring buybacks they would be identical to dividends.