Part 6 of a series of posts on the JOBS Act
The number of publicly traded companies listed on exchanges in the U.S. fell precipitously in the late 1990s through 2011, dropping from 8,823 in 1997 to fewer than 5,000 in 2011, according to the World Federation of Exchanges.
At the same time, the number of companies going public through an Initial Public Offering (IPO) also fell dramatically, dropping from a combined high of nearly 1,300 in 1996 and 1997 to fewer than 200 during the combined period of 2010-2011.
These disturbing trends were a big part of the reason why the JOBS (Jumpstart Our Business Startups) Act was adopted by Congress and signed by President Obama in April 2012. Without a steady flow of new startup businesses and capital investment – and the jobs and economic activity they provide — U.S. innovation funding was headed in the wrong direction.
The idea was to quickly get IPOs back on a faster track, and that’s exactly what’s happening, according to recent observations of the IPO markets.
Through the JOBS Act’s creation of a new category of startups called Emerging Growth Companies (EGCs) with new privileges designed to make it easier for them to go public, the number of new IPOs have been accelerating at a rapid pace.
An October 8, 2014, blog article by Jackie Kelley on Forbes.com—based on research by Ernst & Young—said the IPO market is booming, with U.S. exchanges trending toward their strongest activity in more than a decade.
Through September 2014, 220 IPO deals had raised $77 billion in investor financing, the blog noted. EGCs have dominated the IPO market since 2012, representing 84 percent of the IPOs that have gone effective.
And almost all of the growth in IPOs in both 2013 and 2014 has come from EGCs, according to Kelley’s blog.
That’s backed up by a report on IPOs recently posted on companies in the Research Triangle of North Carolina, one of the nation’s most dynamic tech centers.
Six Research Triangle-based companies went public in 2014 following seven in 2013—believed to be the most ever for one year in the region.
While those numbers may seem low, to put that in perspective only one Research Triangle company went public in each of the four years before 2013.
This also follows a national trend. In 2013, 222 U.S. companies raised $55 billion by going public, making it the most active year for IPOs since 2000. But 2014 has been even more active, with 273 companies going public—a 23 percent increase.
A December 27, 2014, analysis by NewsObserver.com shows the amount of money raised through IPOs jumped by 55 percent—nearly $85 billion—from 2013 to 2014. However, it was noted that the IPO by Chinese e-commerce company Alibaba — whose $22 billion IPO was the largest in history—had a significant impact on the IPO market in 2014.
An August 2014 Ernst & Young report on the progress of the JOBS Act analyzing IPO activity through the first six months of 2014 clearly foresaw the direction and momentum the Act was providing and continues to provide for IPOs.
“2014 is shaping up to be a banner year for IPOs,” the report said. “For the first time in more than 10 years, the second quarter of 2014 marked the third consecutive quarter that had more than 70 IPOs on U.S. exchanges.”
The E&Y report noted that IPO activity started surging in the second quarter of 2013 and has maintained a strong pace since then.
That trend is expected to continue in 2015, observers say, as long as macroeconomic conditions, equity market stability and investor confidence remains strong