Have IPOs lost their luster in the US?

July 11, 2012

For the first time in recent history there were no initial public offerings that came to market in the month of June, which is traditionally one of more active IPO months during the year. Are companies just waiting for the stars to align in the marketplace? Or, is there something more at play?

For the first time in recent history there were no initial public offerings that came to market in the month of June, which is traditionally one of more active IPO months during the year. With 53 IPOs backlogged one might think that this is just a temporary anomaly. Maybe the time isn’t right, or maybe it was because the Facebook IPO fiasco is still fresh on everyone’s mind. After all since Facebook was launched on May 18th, there have been 14 IPOs withdrawn. Are these companies just waiting for the stars to align in the marketplace? Are they waiting for a lull in the continuous drum of bad news that seems to come out of Europe? Are they waiting for the kinks to be straightened from the inexplicable bind up of the usually seamless IPO trading at Nasdaq? Or, is there something more at play?

Unfortunately, I think there is more than meets the eye. I believe US markets are overregulated and are losing their star quality for IPOs. Sarbanes Oxley, and now Dodd-Frank have cast a cloud over business and have added to an aura that the US is becoming less and less friendly to capitalism. As a board member of a major corporation recently said to me, “You can’t legislate honesty.”

The federal regulatory system is becoming a major impediment to corporate growth and is forcing growing companies to seek alternatives when it comes to IPOs. The London Stock Exchange “Alternative Investment Market” openly promotes itself as a worthwhile alternative to U.S. stock exchanges. It’s website claims, “An emerging growth company could go public and raise capital under reasonable terms and for reasonable fees by listing on the AIM.” IPOs on the Chinese exchanges accounted for 40% of total global IPO funds in 2011. Hong Kong is increasingly drawing IPOs from around the world.

In general, the IPO markets will not perform better until the equity markets improve around the world. The European sovereign debt crisis needs to find resolution. There are major political elections that could change the economic outlooks as well. In the meantime, I encourage the US regulatory agencies to simplify regulations so they can be readily managed with proper oversight rather than creating more regulations where more loopholes will spawn. In turn, the major exchanges in the US should fight the government’s trend toward ever more regulations. In this case clear and simple is better.

For a company considering an IPO, our best advice is to prepare far in advance. Make sure your corporate brand is crystal clear and well articulated. Then be ready to move quickly when the timing for your IPO is right.

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