Summary:
The U.S. stock market plays a pivotal role in financing companies, with secondary offerings, buybacks, and dividends overshadowing IPO activity in terms of capital flow. While IPOs are critical for initial fundraising, public markets enable ongoing capital management, allowing companies to raise funds for growth or return capital to shareholders efficiently. Understanding these dynamics is essential for investors, as secondary issues and buybacks significantly impact market liquidity and shareholder value.
What This Means for You:
- Secondary offerings provide companies with a cost-effective way to raise additional capital, often with minimal market disruption.
- Buybacks can signal confidence from management but may also indicate limited growth opportunities—monitor company motives.
- Dividends offer steady returns, especially during market downturns, making them a reliable component of long-term investment strategies.
- Stay informed about broader market trends, as shifts in IPO activity, secondary issuances, and buyback strategies can reflect economic conditions.
Original Post:
You might think stock markets’ biggest role in financing companies happens on the day of their initial public offering (IPO).
Although IPO day is important to each company, data suggests that public markets see more company cash flows from secondary issues, buybacks, and dividends.
IPOs are smaller than secondaries
The annual SIFMA handbook always includes interesting data across asset classes and countries.
One chart that is interesting to me, working at a listing exchange, is below. It shows that IPO proceeds are actually a fraction of all capital raised by the U.S. stock market each year — even in a “big” year for IPOs, like 2021 (note that the SIFMA data excludes special purpose acquisition companies, or SPACs).
For example, last year, IPOs raised a total of $30 billion, while secondaries raised almost $170 billion.
Raising additional capital, for new acquisitions or projects, is another benefit of being a public company. Typically, secondaries are completed overnight, at a small discount to the closing price that day.
Chart 1: U.S. market secondary trades add to much more than IPOs
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