A couple of months ago, I wrote a few articles about the head-long rush towards IPO listings that had been occurring in New Zealand, and asked whether the supply-and-demand equation had reached a tipping point. Since then, many of the companies that listed have suffered at the hands of the market. Some questioned whether the companies were fit to list in the first place. Yesterday, Brian Gaynor made his view plain:
The problem is that investment banks, private equity investors and other vendors have adopted an incredibly short-sighted, profit maximisation strategy.
I think Gaynor is on to something here. Rather than thinking about the core purpose of the company and a robust strategy to achieve that purpose, many of the vendors and private equity investors seem to be more interested in profit maximisation (realising a strong return on their own investment). If this assumption is correct, then another—potentially far worse—problem lies under the surface: did the pre-IPO board act in the best interests of the company (as required by the New Zealand statute) by bringing the company to IPO?
The strength of an economy is dependent on many things, including companies that deliver value to their customers, employment to their staff and profits to their owners over a sustained period. The greedy pursuit of quick profits might satisfy vendors and private equity investors at the time, but rarely is it beneficial to the wider economy or to society at large. However, the invisible hand of the market may be at work. The poor performance of the recent IPOs could actually be a salutary warning signal for vendors and private equity investors contemplating bringing their own company to IPO—to think carefully about their motivations.
Thoughts on corporate governance, strategy and effective board practice; our place in the world; and, other things that catch my attention.