The decline in IPO activity has extended into 2023, while private markets continue to press ahead, increasing funding, deepening liquidity and improving technology. Myles Milston, co-founder and CEO of
Globacap, explains how private markets are closing the gap to public markets, and how this presents an opportunity for stock exchanges. 

Public markets are struggling. 2022’s drop in IPO activity has extended to H1 2023, where just 34 companies listed publicly in Europe, representing a 42% decline and the lowest H1 amount since 2009.  

Despite the FCA announcing simplified rules to encourage companies to list in the UK, 18 issuers raised just £593m on the main market in London, with most of the activity emerging in the second quarter when 10 main market IPOs raised £497m. 

US listings have faced a milder slowdown this year, with 75 companies floating in the first half and raising $11.5bn, according to Dealogic. But the market still had its lowest volume and value since 2015.  

In contrast to stagnant public markets, private markets have made huge strides forward. Over the past decade, they have increased funding, boosted liquidity and embraced automation and technology, making them an attractive alternative to going public. While this may be seen as a threat to the future of stock exchanges, it also presents a golden opportunity. 

Where public markets stumble, private markets pick up speed 

Many have cited issues such as rising interest rates, record-high inflation and increased geopolitical uncertainty as reasons for the drop off in IPO activity. 

However, a major factor is the growing momentum behind private markets. While EMEIA IPO activity continues to shrink, private markets are beginning to function more smoothly, quicker, more efficiently, and at a greater scale than before. Having grown at double the rate (AUM increased by $4 million) of major developed public markets over the last decade, private markerts have seen a 170% increase in capitalisation, according to McKinsey in its Private Markets Annual Review.  

Private companies planning to list and those that have already gone public are increasingly finding private markets more attractive. This is because companies can now access the funding and liquidity they need while avoiding the complexity and expense of going public.  

Funding at scale 

The rise of venture capital and private equity groups capable of raising and deploying vast pools of private capital has meant the funding options for those wanting to stay or go private are there at scale.

EY recently reported that an estimated US$22.6 trillion of capital is invested in private markets – a figure expected to continue rising despite recent headwinds. This expansion in private markets AUM signifies that public markets are now in direct competition with private equity and venture capital as sources of capital for companies of all sizes. 

Secondary liquidity 

The expansion of secondary liquidity has eroded one of the core traditional advantages of being public. This has been facilitated by the rise of electronic marketplaces allowing issuers, brokers, employees, and early-round investors to buy and sell shares. This confirms private markets are developing market infrastructure for price discovery and trading in private shares that is similar to that of stock exchanges.

Likewise, the inability of venues such as AIM to provide deep and continuous liquidity has reduced their value to many firms. 

Technological disruption 

The sophistication of the technology available to facilitate and manage private transactions has rapidly increased, closing the gap to public markets in terms of efficiency. While non-private company CEOs remain modest on digital and technology investment,

74% of their private peers are planning to accelerate tech spending this year.

Private market transactions have historically been manual, laborious, and time-consuming, but technology like workflow automation SaaS helps bring public-market efficiency to the private sphere. Digitising cumbersome processes such as the issuance, administration, transferability, and settlement of securities is helping to streamline private capital markets, reducing costs and improving efficiency for intermediaries. 

The opportunity for stock exchanges 

While these advancements in private markets could be interpreted as a threat to the future of stock exchanges, they in fact present an opportunity. 

The boundary between public and private markets today is blurring and shifting. A spectrum of capital raising services – often unified under the umbrella of an exchange group – is becoming more and more normal.  

There will always be use cases for companies staying private for longer, or even for good, just as there will always be use cases for going public.  

We expect the stock exchanges of the future to be much more diverse institutions than some currently are, and we believe possessing some sort of presence and capability in private markets will be essential for exchanges to remain relevant.

Fundamental and fast adaptation is essential, but by embracing the potential of private markets exchanges can remain in a central role as hubs of capital formation, and become more diverse, resilient institutions able to support and navigate a changing landscape with ease.  

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