You can count on the editorial page of the New York Times to spoil a good party. With Twitter’s IPO poised to raise nearly $2 billion, the market is looking healthier than it has in years. But a Times editorial said new-stock offerings should “raise suspicion, not excitement.” That’s a stunningly harsh assessment, even among critics of the IPO process. Are IPOs really that bad?
With Twitter set to price its initial public share offering later this week, the workings of the IPO market are again ripe for discussion. There’s plenty about the way IPOs are marketed and sold that could be improved. Nonetheless, a healthy IPO market, even with its flaws, helps innovative companies grow and rewards early stage investors for taking risk.
But the Times doesn’t attempt to make any distinction between IPOs that are priced and managed well by their underwriters versus those that are not. Investors, warns the Times, should be ‘wearing gas masks’ to avoid either the stench of rotten companies or the thin air of sky-high valuations (the writer wasn’t exactly clear on the metaphor).
The Facebook IPO debacle continues to cast a long shadow over the market, as does the echo of the dot-com frenzy more than a decade ago. There is ample fodder for critics there. And the Times was right to point out that disclosure is essential to a well-functioning market, and that the new rules enacted under the JOBS act to limit financial information issuers must provide are detrimental.
Still, how about a little love for the IPO market? In October, 33 companies went public, raising over $12 billion and putting the IPO market well on pace for the largest issuance volume since 2007. An improving economy and strong gains for the major stock averages have helped fuel investor demand.
But the editorial says something else that’s worrisome. Between its lines is a deep suspicion about whether financial markets, banks and investors serve any valuable public purpose. Sure, the industry has a lot to do to restore trust, but well functioning capital markets are needed for a vibrant, job-producing economy.
It is reason for alarm when the leading newspaper in the city that is (for now) the center of the world’s capital markets doesn’t get this point.