Last week, Acquis published the 2016 OTC Markets’ Graduate Review and the data was very interesting.
According to the report, 35 companies uplisted from the OTC markets to the NASDAQ, NYSE, or NYSE Mkt in 2016. That’s a huge drop from 2015 (60 uplists) and an even bigger drop from the average (80 uplists) of the five previous years!
I don’t have a definitive explanation for large decrease in graduates but I do have two theories;
1. More Private Capital – Private capital providers like venture capital, private equity, and angel investors have seen huge growth in the last few years. Even more traditional investors are getting in on private company investing. With tons of capital available to private companies, that wasn’t available 10 years ago, private companies have more funding options than ever before. More private capital means higher valuations, larger funding rounds, and access to a diverse pool of investors – all things that where once reserved for public companies.
2. Improved OTC – A lot has changed at the OTC Markets in the last few years. The OTC Markets Group has increase the quality of their OTCQB and OTCQX by providing more support to QB and QX issuers and holding those issuers to a overall higher standard. With all of the improvements at the OTC, many issuers are choosing to stick around rather than take on the increased cost and complexity associated with senior exchanges.
The two trends above seem to have a direct correlation to the decrease in OTC graduates.
So, why the drop in OTC graduates? In short, as the OTC Markets improve, less companies want to leave and, as more capital becomes available privately, fewer companies need to go public to raise growth capital.
What do you think? Why did we see such a huge drop in uplists this year? Share in the comments or tweet at me @Benjamin_Kotch
Ben Kotch is a managing director and investment committee member at Acquis Capital, LLC, a private investment firm that specializes in acquisitions. He has extensive experience with both private and public companies. Ben graduated with an economics degree from Bentley University where he concentrated in entrepreneurship and law.
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