Are You Ready For A 1990s IPO Market Redux? Development In Three Legs Of IPO Market Ecosystem Opens Possibilities Of Most Robust IPO Market In History

Thursday, January 24, 2013 08:06
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Are You Ready For A 1990s IPO Market Redux? Development In Three Legs Of IPO Market Ecosystem Opens Possibilities Of Most Robust IPO Market In History

Tags: business owners | investment strategies | markets

If you and your clients have been late to the stock market party, there’s still hope for initial public offerings (IPOs).
 
The last big years for IPOs was in the 1990s and the IPO market has been in fits and starts since then. But there are solid underpinnings for resurgence. Here are three.

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Sandy Miller, general partner at Institutional Venture Partners, offers three reasons the IPO market is likely on the brink of recovery.
 
He describes what he calls the three-legged stool behind the IPO ecosystem—three specific parts that make the IPO market stable. Two of the three are already in place.
 
The first leg is a large swath of innovative growth companies. The number of private companies being created now is about five times the amount of IPO action seen in the 1990s.
 
Entrepreneurs of today are defining massive, fast-growing markets that hardly existed 15 years ago.
 
Some of these include enterprise mobility, social networking, and big data analytics. There is also major disruption occurring in traditional industries like travel, transportation, and legal services.
 
The technology companies of today also have scalable models that are more sustainable. This means there will be more new companies that succeed for the long term.
 
The second leg is the relief of much of the regulatory weight from Sarbanes-Oxley and the Spitzer settlements by the JOBS Act (Jumpstart Our Business Startups).
 
Companies are not able to take full advantage of these opportunities at the moment because the SEC and FINRA are still defining guidelines. When that happens, companies will likely be bolder and take full advantage of the new laws.
 
The JOBS Act also allows for confidential IPO filings. This along with the ability to test the waters are huge opportunities for new companies to find out market receptivity for their products or services and to keep their ideas secret until they are sure the IPO will indeed come to market.
 
Leg three is the investment banking system, the one out of the three that needs the most improvement.
 
Better monetary incentives to underwriters, hiring only one manager with two to four co-managers, and better pricing to set up more reasonable—and achievable—expectations are where the investment banking system currently falls short.
 
All of this means that this could end up being the most robust IPO market in history.

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