Steven Davidoff Solomon, the Deal Professor, authored an interesting piece, “Tracing the Migration of Public Companies,” in Wednesday, September 21’s New York Times Business section. Based on data from public filings, the Deal Professor stated that “one out of five companies on the New York Stock Exchange and the Nasdaq stock market hail from [California],” making it the “capital of American business.” This concentration of public companies headquartered in California represents an increase from just 10% of all public companies located there during the period from 1965 to 1979. The public company growth in California is not entirely surprising given that the computer and Internet industries only took off in the late 1990s.
Other growth states included Texas and Massachusetts, with 10.3% and 5.1% of all public companies, respectively. Together with California and New York (declining over the years, but still at 8.3%), nearly 40% of all public companies maintain their principal executive offices in these four states. Further, in the last 12 months, 50% of all initial public offerings were conducted by operating companies located in these four states. And, of the five largest companies in the United States by market value (Apple, Amazon, Facebook, Google and Microsoft, all tech companies), three are located in the Bay Area in California and the other two are not far away in Seattle.
On the other hand, the Deal Professor noted declines from 1965-1979 to 2000-2003 in public companies located in Rust Belt states such as Ohio, Pennsylvania and Illinois, as well as (but not as steep) in New York and New Jersey, reflecting long-term changes in the areas’ industrial and manufacturing base.
The Deal Professor posits a number of possible social, economic and geographical explanations for these developments: (i) the tech phenomenon (which has historically benefited California’s Bay Area), (ii) the emergence of the biotechnology industry (primarily benefiting California, Massachusetts and Texas), (iii) low tax rates, light regulation and reasonable housing costs (which applies in the state of Texas, but paradoxically not California or Massachusetts), and (iv) an established base of growth companies, universities, hospitals and other “hubs” with favorable business infrastructure (as in California and Massachusetts, but arguably not New York where skills are more associated with finance, media and fashion).
The Deal Professor seems to favor the last of the explanations – suggesting that a “business-friendly environment” is the key to creating public companies. Most importantly, over and above existing public companies, he noted that new growth companies are attracted to “feed off the infrastructure” that has been already created and a support network quickly builds in the area in the form of lawyers, bankers (including venture capitalists) and other advisors (in many cases migrating from New York), notwithstanding the latest remote communication technologies.
The Deal Professor ends the piece by suggesting there needs to be more study of why certain states are able to nurture and attract public companies. What is clear is that growth companies – some of which naturally progress to become public companies – require concentrations of talent and capital. The Deal Professor’s data show the fundamental shift of public companies away from heavy industry to a focus on computers and biotechnology. The fact is that these technology companies breed, attract and spin-off yet more tech companies, making it more difficult for states without aggregated resources to attract and hold on to public companies.
PartnerArmed with more than three decades of capital market experience, Spencer represents smaller publicly traded companies, and often underwriters and investment funds, in public and private securities offerings. He focuses ...