Why are more companies

staying private?
Meeting of SEC Advisory Committee on
small and emerging companies

15 February 2017
Public listings are on the decline since mid-1990s

14,000

12,000

10,000
Number of companies

8,000

6,000

4,000

2,000

0
Year 1975

1976-1985

1976-1985

1976-1985

1976-1985

Year 1985

1986-1995

1986-1995

1986-1995

1986-1995

Year 1995

1996-2005

1996-2005

1996-2005

1996-2005

Year 2005

2006-2012

2006-2012

2006-2012

2006-2012

Year 2012
Voluntary

Voluntary

Voluntary

Voluntary
Mergers

Mergers

Mergers

Mergers
Cause

Cause

Cause

Cause
IPOs

IPOs

IPOs

IPOs
Source: Craig Doidge (Rotman School of Management at the University of Toronto), G. Andrew Karolyi (Johnson Graduate School of Management at
Cornell University), and Rene M. Stulz (Fisher School of Business at The Ohio State University), The U.S. listing gap, The National Bureau of Economic
Reseearch, May 2015, 2015, NBER. Data include US domestic companies listed on NYSE and NASDAQ excluding investment funds and trusts.

The number of public companies has decreased by more than 50% since the 1996 peak. This
decline is mainly due to M&A activity among public companies and delistings for cause
(noncompliance) offset by IPO activity.
Over this period, very few companies voluntarily went private.
Delistings for cause have decreased since 2005 which suggests that higher listing requirements and
SOX reforms have had an effect on the quality and sustainability of listed companies.

Page 1
More than 90% of IPOs listed on domestic exchange
Trend continues; 6% of global 2016 IPOs were cross-border listings

19962016 domestic IPOs as percentage of annual global IPOs

98% 98%
97%
96%
93% 94% 94%
93%
92% 92% 93% 93% 92%
91% 91% 91%
90% 90% 90%
89% 88%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

A foreign listing is where the domicile of the primary exchange (or the secondary exchange for dual listings) differs from the listed company domicile. For dual
listings, all funds are allocated to the primary stock exchange. Deals by Chinese companies on HKEx are not considered foreign listings.
Sources: Dealogic, Thomson Financial, EY research.

Page 2
From 2012 to 2016, US exchanges were the
preferred markets for cross-border listings
20122016 top stock exchanges for cross-border listings
Number of IPOs Capital raised (US$b)
200 $70
China US$66b
178 22%

34 other $60 Includes Alibabas

countries
42% Israel US$25b IPO
150 15%
$50
Canada United
5% Bermuda Kingdom
11%
5% $40
96
100 91
$30

$20
50 44 US[VALUE]
US[VALUE]
b
b
23 $10 US[VALUE] US[VALUE]
b b
0 $0
NYSE & London Australia Hong Kong Other NYSE & London Hong Kong Singapore Other
Nasdaq (Mainboard & (ASX) (HKEx & Nasdaq (Mainboard & (HKEx & (SGX &
AIM) GEM) AIM) GEM) Catalist)

A foreign listing is where the domicile of the primary exchange (or the secondary exchange for dual listings) differs from the listed company domicile. For dual
listings, all funds are allocated to the primary stock exchange. Deals by Chinese companies on HKEx are not considered foreign listings.
Sources: Dealogic, EY research.

Page 3
And very few US companies are listing abroad

3 16
14 14
14
2 Samsonite IPO in
Hong Kong 12
10
Capital raised (US$b)

10
2

Number of IPOs
8
7 8
6 6
1
5 5 6
4 4
3 4
1
2
1 1 2

$0.02 $0.04 $0.45 $0.49 $0.36 $0.70 $0.17 $0.01 $0.28 $2.23 $0.02 $0.37 $0.24 $0.36 $0.02
0 0
2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016
Capital raised (US$b) Number of deals

Based on IPO activity on non-US exchanges by US domiciled companies, excluding dual listings
Source: Dealogic

Page 4
There has been an upward trend in VC-backed
company formations ...

5,000

4,500

4,000
Number of financing rounds

3,500

3,000

2,500

2,000

1,500

1,000

500

0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Second round 206 175 206 235 376 463 556 887 1,414 989 638 507 492 491 592 606 629 640 626 632 642 783 834 932 817
First round 288 290 339 473 682 814 969 1,832 2,792 1,005 646 618 724 867 912 1,124 1,103 794 978 1,257 1,370 1,439 1,507 1,497 1,299
Seed 74 86 97 112 187 154 158 320 293 146 98 80 105 107 168 218 206 186 272 465 524 494 397 292 187

Total 568 551 642 820 1,245 1,431 1,683 3039 4,499 2,140 1,382 1,205 1,321 1,465 1,672 1,948 1,938 1,620 1,876 2,354 2,536 2,716 2,738 2,721 2,303

Venture capital includes all investments made by venture capitalists or venture capital-type investors, i.e., those making equity investments in early-stage
companies from a fund with multiple limited partners.
Source: Dow Jones VentureSource.

Page 5
... however, IPOs have not kept pace

Capital Number of
raised (US$b) IPOs
Capital raised
120 700
(US$b)
624 Number of deals
Dot com and human
genome bubble 600
100 554
511
488
500
80 448
404 Global financial
358
393 crisis
400
402
60

291 300
238 204
40 208 214
218 226
162 200
124 174
88 133 111
20 84
91 65 100

35
0 0
1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016
Based on IPO activity on US exchanges including cross-border deals, excludes special purpose acquisition companies (SPACs) and business development
companies (BDCs).
Sources: Dealogic and EY Analysis.

Page 6
US IPO listings by US domiciled companies

70 700

60 572 600
527

50 476 500
448
Capital raised (US$b)

413

40 377 400

Number of IPOs
374 351
323

30 300
224
215 208
179 171 188
20 160 200
133
109 101 121
86 83 79 90
10 100
48
26
$16 $27 $37 $21 $21 $30 $32 $38 $66 $63 $38 $22 $14 $40 $34 $35 $36 $26 $17 $37 $34 $41 $54 $55 $28 $15
0 0
1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016
Capital raised (US$b) Number of deals

Based on IPO activity on US exchanges by US domiciled companies, excludes special purpose acquisition companies (SPACs) and business development
companies (BDCs).
Source: Dealogic

Page 7
Acquisitions of US private companies remain
robust

7,000
6,502

5,967 5,989 6,028

6,000 5,774
5,425 5,333
5,135
5,000 4,799 4,817
Number of deals

4,660
4,438 4,526

3,959
4,000 3,721 3,821
3,598

3,118 3,022
3,000 2,791

1,953
2,000

1,000

0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

registered IPOs $30mm+. Excludes BDCs, SPACs, MLPs and REITs.

Sources: Dealogic and EY Analysis.

Page 8
Dual-track exit strategies remain common
Acquisitions of US private companies with values >US$100m

600

500 478
440
433
410
400 387
Number of deals

400 375
369

321 333
302 312
298
300 282
260
241

200 182 178

167
157
127

100

0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Sources: Dealogic and EY Analysis.

Page 9
Acquisitions of US publicly traded companies have
fallen along with the number of public companies

1,000
905
900

800 766 752

696
700
Number of deals

608
600

500 462 466

443 443 426
406
400 361
300 296
300 269 276
242 242 253 240 251

200

100

0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Sources: Dealogic and EY Analysis.

Page 10
Why are more companies staying private?
In short: Because they can

Why go public?
Access source of (typically) lower
cost capital
Currency for acquisitions
Shareholder risk diversification
(especially true in biotech)
Liquidity for founders, investors and
employees
Why stay private?
Brand identity
Increased availability of private
capital: larger amounts, from
different pools at higher valuations
More disclosure equals potential
loss of competitive advantage
More operating flexibility: short-term
mentality of public investors and
activists
Regulatory burden and risk
Other: class-action lawsuits, short
sellers, proxy fights, lack of analyst
coverage, etc.

Page 11
Factors that may explain why companies stay
private longer
Venture capital, private equity (PE) firms and sovereign funds have
substantially increased available capital to invest and are struggling to
invest the money they raise. PE exits are more likely to be strategic sales
rather than IPOs.
McKinsey showed in a recent study that the capital invested in private tech companies
grew from US$11b in 2005 to US$75b in 2015 and almost tripled from 2013 to 2015.
Uber was able to raise more than US$8b from PE firms and sovereign funds and
US$3b of private debt over 7 years whereas Facebook only raised US$2.4b of
private equity over the same period of time a few years before.

Interest rates are at an all-time low, which provides private companies with
opportunities for direct financing at a low-cost (through debt) and provides
strategic buyers with low cost capital to acquire private and smaller public
companies.

Page 12
Factors that may explain why companies stay
private longer
Light-asset models: with the digital transformation, start-up companies
business models require less capital than the old industrial economy, which
reduces the need to seek public funding.

The JOBS Act of 2012 increased the accredited investor limit for registering
with the SEC from 500 to 2,000 and excluded employees receiving exempt
equity awards. This change allows private companies, especially in the tech
industry, to remain private longer, as long as their financing needs can be
otherwise covered through private debt and PE capital.
Google and Facebook decided to undertake their IPO process when they reached the
500 investor limit.

Decimalization, tick size changes, reduced availability of analyst coverage

and related effects on trading profitability reduce the incentive of
intermediaries to take small, private companies public. Public investors have
a preference for larger deals with more public float/liquidity.

Page 13
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