There is a new trend for companies to remain privately owned. Why have mega-companies like Facebook yet to go public? The New York Times reported recently, “An I.P.O. used to be a rite of passage for a company, a sign that it had arrived. But even before the financial collapse of 2008, some entrepreneurs and financiers worried that America’s markets were somehow losing their edge. That would be bad news not only for Wall Street but ultimately the entire economy.”
Investors are frightened due to the recent stock crash. Will the economy suffer if there isn’t an infusion of new companies in the stock market? The numbers are definitely down. According to The New York Times, “The annual rate of I.P.O.’s peaked in 1996, when around 756 American-based companies went public, according to Dealogic. That figure fell to a low of 36 during the financial crisis in 2008. It picked up to about 50 in 2009 and, so far this year (2010), it is running at about 100, excluding G.M.”
There has been talk that IPOs will pick up in 2011. There are some major companies that have hinted at going public in 2011. Here is the latest on some of the most discussed possible entrants into the IPO market:
- Skype – TMC News reported, “Skype originally filed an S-1 registration statement with the Securities and Exchange Commission back in August, but have made several major moves since that may have pushed back the company’s timetable.”
- Facebook – Although it is possible they could go IPO in 2011, recent talk has indicated it will probably not happen until 2012. ComputerWeekly stated, “Facebook is preparing to sell stock through an initial public offering (IPO) in 2012, according to a document published by the social networking company. The document revealed that the number of Facebook shareholders will increase above 500 this year, forcing the company to go public or disclose financial information.”
- Twitter – Some have speculated Twitter would be going public but ReadWriteWeb reported differently. “According to CEO Costolo, Twitter has grown quickly recently, with 100 people joining the company in Q4. While the company recently raised $200 million in funding, Swisher wondered what Costolo saw as the company’s future – would it sell or would it go public? Neither, said Costolo.”
Companies go public to get money. There are other advantages. According to Investopedia.com, other reasons to go public include:
- Because of the increased scrutiny, public companies can usually get better rates when they issue debt.
- As long as there is market demand, a public company can always issue more stock. Thus, mergers and acquisitions are easier to do because stock can be issued as part of the deal.
- Trading in the open markets means liquidity. This makes it possible to implement things like employee stock ownership plans, which help to attract top talent.
There are some disadvantages to going public. According to Findlaw those disadvantages include the following. I recommend going to Findlaw’s link to read the full explanations behind each of these disadvantages:
- Time and Expense
- Decisions Based on Stock Price
- Regulatory Review
- Falling Stock Price
- “Facebook IPO in 2012, if SEC has its way” and related posts (personalmoneystore.com)
- CES 2011: Will Twitter Sell or IPO? CEO Dick Costolo Says “Neither” (readwriteweb.com)
- LinkedIn IPO Rumored For This Year (webpronews.com)
- High Facebook valuation shows IPO market is primed (zdnet.com)