In a lot of ways the IPO market has become a way to exit positions very much unlike the past. It use to be that the public markets provided greater liquidity and hence higher valuations for companies. Not to mention that being a public company provided a brand awareness for both employees and customers. Not now though.
In a general example, companies would go public worth $250M and trading at 10x earnings with the major shareholders looking to exit positions as the company grew to be worth $2.5B and trading at 20x earnings. In a lot of ways, the system was set up for the new public shareholders to gain with the company. The public markets provided that catalyst.
Now companies come public with multi billion valuations while trading at exorbitant multiples. This leaves very little room for gains in the public markets.
The below video from Breakout highlights some of the grand issues with the recent filing of the Autotrader.com IPO. As pointed out, nothing appears illegal. The company though stripped out any reason for buying the stock. Investors have been warned.
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