More Companies Shun IPOs, Remain Private

(The Seattle Times/TNS) -

Investors may finally be running out of patience with the growing number of companies choosing to stay private rather than enter the public markets.

Companies going public raised $30 billion this year, according to a report from IPO research firm Renaissance Capital—a six-year low. The 169 offerings this year compares with 275 IPOs that raised $85.3 billion in 2014.

Much of the slow activity stems from the relative warmth of the private markets. Investors are putting more money into private companies, so businesses figure there’s not much incentive to go public and be subject to wider scrutiny.

That affects growing tech companies in particular. In 2015, tech companies in the U.S. raised $8.1 billion through IPOs, compared with $20 billion through private investments during just the first half of the year, according to a report released this week by from Ernst & Young.

“There is an abundance of capital available from many sources that’s extending the runway for companies that may have considered an IPO,” said Jackie Kelley, of Ernst & Young. “The good news is that many of these companies are not as mature and they benefit by being able to stay private longer … to mature their businesses.”

This year is slower than last year, but it’s average when you look at the past five years’ IPO activity, she noted.

A report from research firm CB Insights indicates the market may heat up next year, largely a result of investors’ urging companies to take the public plunge.

“Given how bad 2015 was, the reality is it couldn’t get worse,” CB Insights CEO Anand Sanwal said in a statement.

In its annual Tech IPO Pipeline Report, CB Insights listed the companies it believes have the momentum and financial strength to go public in 2016. That pipeline is strong. The 531 U.S. companies it listed have raised a combined $89.03 billion. Many will choose to stay private, but some may be “forced” to go public, the report suggests, because the private markets will decide they have raised enough private money.

“I’m pretty optimistic for the first half of the year,” Kelley said. “There is lots of great activity happening in the consumer-product sector, in technology, and lots and lots of activity across multiple sectors.”

CB Insights does not publish the full list of pipeline companies. It does name hot San Francisco and Silicon Valley companies like software infrastructure company Nutanix, delivery service Postmates, Uber and Airbnb.