30-Year Low in IPOs Suggests Pent-Up Demand

See this article on Bloomberg, entitled Fewest US IPOs Since 1979 Mean Pent-Up Demand.

Excerpt:

The chart of the day shows the number of initial share sales of more than $50 million completed each year in the past decade, according to data compiled by Renaissance. This year’s total, 43, is the lowest since 1979.

More than 200 U.S. companies are planning to go public, according to the firm. Only two, Home Bancorp Inc. and Grand Canyon Education Inc., have done so this quarter.

While I hate to be Pollyanna, I do firmly believe that the IPO market is highly cyclical and thus that one of the best indicators of a future open IPO window is the closure of the present one. And, while I don’t have data to support it, I’d generally agree with the elastic rebound theory idea that the longer the window has been closed the more companies will flow through it when it opens.

In my experience, it takes two things to go public:

  • Above-bar financials. There is typically some bar (usually found by examing recent deals) which would-be public companies must surpass regarding financial performance. For example, I think the current bar is roughly 75/50/0 — i.e., $75M+ in trailing twelve months revenues, 50%+ in growth rate, and 0% EBITDA.
  • An open IPO window.

The trick is, of course, having both at the same time.

3 responses to “30-Year Low in IPOs Suggests Pent-Up Demand

  1. Does MarkLogic meet one of your two criteria? :)

  2. We’re private so we don’t release financials. My goal is that we converge on the window parameters a bit after it opens.My belief is that, at some point, the bar should drop. In the 1980s and 1980s, it was more like 30/30/5 — $30 in TTM revenues, 30%+ growth, and 5% profitability.

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