There has been a dearth of IPOs in recent years.
This has led to widespread complaints among public-market investors that there's nothing exciting to invest in anymore.
It has also led to a much broader development of the private markets for hot emerging technology companies.
As a result, investors who can invest via these private markets have cashed in, while public-market investors have missed out.
Meanwhile, the companies that do go public are already so big and highly valued that there's often not much upside left.
So, why is it that companies don't go public anymore?
Well, for one thing, there's the cost. Thanks to the massive regulatory burden the country now places on public companies, it costs at least $5 million a year to be public. What small company in its right mind would want to pay that?
Then, for another thing, there's the enormous hassle and legal risk.
Case in point: Groupon.
Groupon went public at the end of last year. The company is only three years old. It's expanding into many new business lines, so it's still learning as it goes. One of the things Groupon just learned is that the new high-ticket items it is selling have a higher return rate than the lower-ticket items. This realization forced Groupon to restate its Q4 earnings just a few months after going public.
Is that embarrassing?
Is it FRAUD?
Unlikely. More likely, Groupon just wasn't conservative enough in its assumptions. Presumably, it has now learned a searing lesson.
But now look at what Groupon has to deal with:
- Hagens Berman Announces Lead Plaintiff Deadline in Groupon Class Actions
- INVESTOR ALERT: Former Louisiana Attorney General and Kahn Swick & Foti, LLC, Remind Investors With Large Financial Interests of Important Deadline in Class Action Lawsuit Against Groupon, Inc. - GRPN
- Pomerantz Law Firm Has Filed a Class Action Against Groupon, Inc. -- GRPN
- Girard Gibbs LLP Launches Groupon Legal Investigation
- Brock & Leviton Investigates Groupon And Its Officers And Directors For Violation Of Securities Laws
- Newman Ferrara LLP Investigates Groupon For Breaches of Fiduciary Duty
- Robbins Geller Rudman & Dowd LLP Files Class Action Suit Against Groupon
That's just a small sample--there will be many more.
All of these defenders of the
stupid innocent will search the land to find some mom and pop investors--people who never, ever should have bought a stock as risky as Groupon--and use them to shake down Groupon for some settlement money.
And Groupon will pay the settlement money, just to make these folks go away.
The lawyers will take most of the settlement. The mom and pop investors will probably get about $2.98 apiece.
Importantly, Groupon looked like a lousy investment when it went public. That's what I shouted from the rooftops. That's what Jim Cramer shouted from the rooftops. That's what a boatload of other people shouted from the rooftops.
But what made Groupon lousy was not the fact that it has had to make a minor earnings restatement. It was that investors were just paying way too much for the stock of a company that was still experiencing major growing pains.
Investors who choose to do that, voluntarily, despite all the warnings, should take some responsibility for their decisions.
But they won't.
Because this is America. The United States Of Litigation. The country where if you do something stupid it's always someone else's fault.
And that means that, if there is any conceivable way for "the public" to invest in your company, you're eventually going to get your ass sued off--whether or not the investment was suitable or smart for the people who bought it.
So, faced with that reality, why WOULD any company want to go public?
Why not just stay private? Reduce your litigation risk. Keep your costs down. Deal only with investors who understand that investing is a voluntary and risky activity and that sometimes, god forbid, you actually lose money.
This post originally appeared at Business Insider.
Stock AnalysisLearn about some signs of a potential stock market crash including a high level of margin debt, lots of IPOs, M&A activity and technical factors.
Investing NewsWill Ferrari's shares move fast off the line only to sputter later?
ProfessionalsRead an in-depth review and comparison of a career in investment banking and a career in corporate finance, with advice about which one to choose.
Options & FuturesProfessionals choose the options available to you in your plan, making your decisions easier.
InvestingWe take a close look at investment banks working with middle market companies.
Fundamental AnalysisThe costly services of investment banks don’t necessarily guarantee accuracy in IPO pricing.
InvestingThe real estate market relies on capital provided by large global investment banks.
InsuranceWhat are impaired risk insurance products and understanding life insurance rate classes, table ratings and flat extra premiums.
ProfessionalsOpening a wealth management firm is a complex process. By keeping these rules in mind, financial advisors can increase the odds of success.
ProfessionalsReview an in-depth comparison between investment banking and investment management, their respective career paths and which one you should choose.
Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>
Investment banking and commercial banking are two primary segments of the banking industry. Investment banks facilitate the ... Read Full Answer >>
Virtually all types of financial assets and investing instruments are traded on secondary markets, including stocks, bonds, ... Read Full Answer >>
A company would decide to utilize H shares over A shares in its initial public offering (IPO) if that company believes it ... Read Full Answer >>
During an initial public offering, or IPO, a trader may place a buy limit order by choosing "Buy" and "Limit" in the order ... Read Full Answer >>
Corporate actions, defined as a company's actions that affect the amount of outstanding company stock shares, can either ... Read Full Answer >>