Disrupting the Disruptors? The 'Going Public Process' in Transition

Abstract

For decades, private companies planning to enter public markets have used bankers operating as intermediaries, helping them decide on issue timing and pricing, and in meeting disclosure requirements. That banker-led process has always had inefficiencies, but without clear alternatives, companies had to accept the high costs and the money left on the table on the offering date, as bankers set offering prices well below market prices, and rewarded preferred clients. The IPO process is being disrupted by three major changes. First, companies are waiting longer to go public, and are focusing more on scaling up revenues than on building business models that deliver profits, while private. Second, the investor base for IPOs is shifting, from primarily institutional, to include more retail investors, many of whom are young, and get their investing cues more from social media than from roadshows. Third, there are alternatives emerging to the banker-led process, with a few turning to direct listings and many more, especially in the last two years, using special purpose acquisition companies (SPACs). These alternatives clearly are works in progress, and need improvement, but change is coming. In the final part of the paper, we look at disclosures that companies are required to make when they go public, and argue that they not only suffer from bloat, but are not in sync with changes that have occurred in both the companies going public, and those who trade their shares in the immediate aftermath of going public. We argue for reducing disclosure bulk and an easing of restrictions on companies making projections about the future, since these restrictions actually make it easier for companies to sell pie-in-the-sky stories.