One of the problems with Davos, and with ambitious conferences in general, is that all too often the subject of conversation becomes large and amorphous to the point of meaninglessness (“how to leverage leadership in a global economy”, or something like that). So well done to Henry Blodget, at the DLD conference in Munich, for taking his broadly-defined session (“Where is the Money?”) and focusing it with clarity and insight on the question of the disappointing market in IPOs, and the growing grey market in non-public securities.
Barry Silbert, of SecondMarket, made the strongest case possible that “the IPO market has been dying a slow death over the past ten years”, and that nowadays it’s pretty much impossible for a company worth less than $500 million to go public. So it makes sense that private exchanges like his are stepping in and allowing owners to start selling stakes without going through the hassle and expense of an IPO.
The attraction is clear: for one thing, as Silbert says, “the company gets to decide who the buyers and sellers are, and what information they want to disclose to investors.” And by being picky about possible buyers, it avoids the fate of many public companies whose stock is held largely by traders with a time horizon of weeks, days, or even seconds.
What was interesting was the very low degree of pushback that Silbert got. David Liu of Jefferies spent as much time on the downside of IPOs as he did on the upside. “The IPO windows are much tighter now than they’ve ever been, there are so many exogenous shifts in the global marketplace,” he said. “When we counsel companies on the IPO route, we spend a lot of time on the volatility, the quarterly earnings, everything.” He was much more bullish on the M&A market, generally, than the IPO market.
I asked the panel whether they agreed with the conventional wisdom in the media that Facebook is going to go public in 2012 when it starts releasing financial information to the SEC. No one did: they all thought there was a good chance that Facebook could stay private indefinitely.
That said, it’s also pretty clear that Facebook is exceptional in that respect: it’s important not to extrapolate from one hypothetical datapoint. Liu said that Facebook’s private valuation, at a p/e ratio somewhere north of 100, is higher than it would likely be trading at in the public markets. And if that’s the case, then the chances of an IPO seem pretty slim indeed: Facebook’s executives aren’t going to sell a large chunk of shares to the public at a significantly lower price than they could fetch privately.
Near the end of the panel, Silbert said that nine out of ten CEOs who had run both public and private companies would say that given the choice, they will never go public again. Somewhere in the audience, I’m sure, Arthur Sulzberger was quietly nodding.
My feeling is that there’s so much money flowing into the private markets these days, in the form of VC funds and super-angels, that tech companies have almost no need to tap the IPO markets any more. They make sense for things like banks and car makers, but in general the total number of listed companies, which has been falling steadily for a decade, will continue to fall for the foreseeable future. I tried to get that data once, and failed — does anybody have a graph of the total number of companies listed on the NYSE and the Nasdaq over time? The era of the public company has not yet come to an end, but it certainly feels as though it’s well past its peak.