With Sycamore's buyout of Staples, $6.9 billion of capital will leave the public markets – NASDAQ in this case – and move into the private markets.
The transaction is notable for a couple of reasons: one is that it will likely be the largest leveraged buyout of the year, and another is that it propels Sycamore Partners – a firm that has hitherto kept a low profile, barring the odd lawsuit – into the limelight.
Where the transaction is not unusual, however, is in the fact it sees a private equity firm deploying a large amount of capital to take a public company private. As we noted this week, take-private transactions are on the rise .
Meanwhile, a flurry of IPO activity from private capital-backed companies suggests it is not all one-way traffic.
Certainly among venture capital-backed businesses – such as Bessemer Venture Partners' food delivery company Blue Apron – a recovery seems to be afoot after a sluggish 2016. As of June this year, there have been 30 VC-backed initial public offerings totalling $5.67 billion. This has surpassed the $4.46 billion raised by 85 companies in all of 2016, according to PitchBook.
On the private equity side, the data are less cheery. As of 1 June, there had been 46 PE-backed IPOs raising a total $11.21 billion, putting 2017 on a par with the preceding year.
This slight bump in activity is likely to be a cyclical increase that belies a long-term downward trend. In a report published this week by private equity firm Pantheon, entitled The Shrinking Public Market and Why It Matters , the authors note that in 1996 there were 677 IPOs. Twenty years later in 2016 there were just 74.
“The propensity for companies to go public has gone down,” Cullen Wilson, an associate at Pantheon, said discussing the report this week. “In addition, private companies are staying private for a longer period of time.” There are now approximately half the number of listed companies in the US that there were in the mid-90s.
The question is – to the title of Pantheon's report – does it matter?
From a point of view of dealflow, yes it does; management teams and entrepreneurs who are more open to the idea of private capital mean the investable universe for private equity and venture capital firms is increasing. Those who raise capital for private equity firms point to this when asked whether too much money is chasing too few deals .
In terms of exits, it matters a little. VC and PE investors have become accustomed to other routes. A research study published this week sponsored by Equistone Partners Europe and Investec Bank showed that in Europe so far this year, a grand total of just 11 exits have been through public listings, compared with 186 through trade sales and secondary buyouts. If the Visma deal is anything to go by, then the real action these days remains in private hands.
For retail investors, a shrinking public market matters a lot, providing an investable universe that comprises fewer, slower growing public companies in which to invest. The retail investor's loss is private equity's gain.
For the Securities and Exchange Commission, it seems to matter too – not least because it matters to retail investors. Jay Clayton, its new chairman, has made it one of his goals to inject some fresh blood in the IPO market.
“The substantial decline in the number of US IPOs and publicly listed companies in recent years is of great concern to me,” he said in remarks to the SEC investor advisory committee last week.
“Under my direction […] the staff is actively exploring ways in which we can improve the attractiveness of listing on our public markets, while maintaining important investor protections.”
It remains to be seen how efficient the steps the SEC takes in the next few years will be. Private equity firms will not be holding their breath.