In the last 20 years, the U. S. stock market has undergone an alarming change that too few people are aware of or talking about. Between 1996 and 2016, the number of listed companies fell by half, from 7,300 to 3,600, according to a recent report by Credit Suisse. This occurred despite the U. S. economy growing nearly 60 percent over the same period.
What’s even more flummoxing is that the U. S. seems to be the only developed country that lost so many stocks. Most other countries actually gained around 50 percent.
This matters because the U. S. stock market accounts for a little over half of the entire global equity market, meaning a huge (and growing) number of investors and fund managers now have fewer options to choose from than they did only a couple of decades ago.
So why’s the pool of publically-traded companies shrinking? We can point to a few different culprits.
For one, merger and acquisition (M&A) activity has strengthened in recent years, and when an M&A takes place, a company is consequentially delisted (if it was listed before the deal). The same thing happens, of course, when a company goes out of business.
Another reason could be the growth of private capital, which allows companies to raise funds without having to go public. Between 2013 and 2015, the amount of private money invested in tech start-ups alone tripled from $26 billion to $75 billion, according to consulting firm McKinsey. As a result, more and more software firms are managing to reach $10 billion in value before their IPO. Think wildly successful companies like Dropbox, Airbnb, Pinterest, Uber – all of which, for now, have avoided selling shares to public investors.
This post was published at GoldSeek on 10 May 2017.
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