There’s been a dearth of IPOs this year — so much so that 2016 will go down as a banner year of less than plenty for investment bankers who rely on fees from this corner of the market, depressed as it is to a multi-decade low.
The Wall Street Journal reported on Thursday (Sept. 22) that the traditional route for companies looking for a public debut on the equity exchanges has been sidelined by access to cheap capital, and this shows little signs of abating.
The numbers show that banks got $3.7 billion in fees from deals that ultimately were listed on U.S. exchanges, including activity across IPOs and convertible debt. This is the lowest level seen since 1995, as tracked by Dealogic. The nadir was $2.6 billion in fees generated that year, though WSJ said that, adjusted for inflation, the upward revision brings the number to $4.1 billion. The zenith? As much as $12.7 billion in 2000 (remember tech excitement?), again adjusted for inflation.
WSJ noted that it is access to cheap capital that has stymied the traditional paths to filling corporate coffers. The historically low level of interest rates, which have proven to be stubbornly low, has been enough to sway the way firms fund.
Thus far, there have been a paltry number of deals on record: Only 68 companies have gone public this year in the United States, with $13.7 billion raised, compared to 138 last year at this time, who had raised $27.3 billion. And 2015 was no picnic either, a year-over-year slide of 62 percent from 2014.
The marquee names, such as Uber, have no problem tapping into private funding and see no real need to expose their numbers and financials, at least fully, to the harsh glare of quarterly reports and SEC filings. With sluggish IPO markets, follow-on offerings typically don’t, well, follow on, and banking fees necessarily suffer.
WSJ said that some industry watchers are alarmed enough that they worry the trickle of IPO activity may never gain more traction or volume. But so far, Wall Street, which has long been known to “overhire” in strong years and “overfire” in lean years, has not been taking a scythe to equity markets and capital markets staffing departments.