Granite Wealth Management

Investable Companies Still in Decline

The number of public companies continues to decline.

The number peaked in the 1990’s with about eight thousand companies to invest in. As of March 2023, the NYSE had a combined total of 2385 listed domestic and international companies and the NASDAQ had 3611 (after subtracting the increasing number of ETF’s and mutual funds). Starting as far back as the 1980’s, the late Lazlo Birinyi noted that the big trend of leveraged buyouts was leading to a shortage of investable names.

As the IPO market gets set to recalibrate, 2023 is shaping up as the worst year for initial offerings since 2009.

While unicorns and pre-IPO valuations generated exciting headlines over the past few years, many companies are shunning public exposure because of the burdensome regulatory issues they face today. For CEO’s and CFO’s, Wall Street’s focus on short-term results has been equally frustrating, making long-term growth plans more difficult to execute in the public arena.

As a result, many high quality companies have been taken off the public equity roster by management with the help of private equity. Hence, the rise of private equity firms. According to Wells Fargo, there are currently five times the number of private equity backed companies than there are publicly traded companies!

Might this be one of the reasons why mega cap valuations keeps rising? The irrefutable laws of supply and demand would suggest so. Are there enough companies of size to put money in — is there enough supply to meet liquidity demands?

Will this week’s IPO of ARM Holdings change that? How about Instracart?

Even with the hype and oversubscriptions, it’s not likely