When I read this jeremiad from the editors of the Wall Street Journal on the relatively small number of initial public offerings offered in the United States last year, it moved me to do a little quick investigation of the 2016’s IPOs and how much was raised by them. You can see the results of those investigations here and here.
114 IPOs were made last year and they raised about $24 billion. In 2006 there were 198 IPOs in the United States raising about $40 billion (in nominal dollars). That’s a big difference.
I found the nature of the companies making IPOs concerning as well. The response to an IPO is a statement about where investors expect money to be made in the future. One third of all of the IPOs were in the healthcare sector, a number wildly out of proportion with healthcare’s present role in the economy. Healthcare presently constitutes about 17% of the economy, employing about 8% of workers.
The second greatest number of IPOs was in the financial sector. The financial sector is about 8% of the U. S. economy and employs about 4% of workers. IPOs in these two sectors also raised a lot more money than those in other sectors.
The foregoing supports a point I’ve made repeatedly here. We’re subsidizing both the healthcare and the financial sectors. If you subsidize something, you expect to get more of it. Capital is limited and two sectors, neither of which employ a large number relative to their earnings, are attracting a disproportionate amount of the investment.
It’s the subsidies, stupid. People are always willing to bet on a sure thing.
Well, subsidies falls into the news heard today about Obamacare receiving something like 10 billion more in subsidized care. Conveniently, the PPACA was structured to produce greater costs and negative impact to the consumers of health care right after Obama left office.
According to my data sources, by number, 2016 IPOs in health care, technology, finance and industrials were apportioned 40/20/10/10, respectively.
By capital raised, a better metric, healthcare and industrials essentially tied, with technology and finance also essentially tied at about 40% of the former.
IPOs in health care are dominated by drugs and devices. One could argue that this is really advances in chemical and materials technology, with applications and market served secoNdary.
In any event, the primary driver of the reduction in IPO activity was stalled (peak ?) valuations.