The public to private equity pivot continues

According to a December 2024 analysis by Scott Reeds, Head of Sponsor Coverage at Citizens Bank's Capital Markets & Advisory group, the private equity ecosystem has expanded substantially over the last 25 years while the number of publicly listed U.S. companies has contracted sharply. The PE-backed company count climbed from about 2,000 U.S. companies in 2000 to more than 11,500, while the count of companies listed on the NYSE or NASDAQ declined from roughly 7,000 to 4,500.

The analysis stresses that the two markets remain very different in scale. Public U.S. companies on NASDAQ and NYSE had a combined market capitalization of about $54 trillion as of March 2024, compared with $3.5 trillion held in domestic private equity funds at the end of 2023. Several public companies have market capitalizations above $3 billion, and roughly 1,000 such firms would equal the entire U.S. private equity market by value. The article concludes that PE-backed firms are more numerous but smaller on average than public companies.

The article notes that PE buyouts are only one reason for the decline in listed companies. Consolidation through mergers and acquisitions, bankruptcies, management buyouts, and other transactions not involving private equity have also reduced the public count. Increased regulatory and disclosure costs for public companies are cited as a factor, contributing to fewer new listings as private ownership and private capital become more accessible.

Reeds argues that PE ownership tends to raise operating standards by upgrading governance, systems, and skills across portfolio companies. The growth of PE has also fueled private credit, with non-bank lenders often affiliated with PE sponsors and drawing on the same institutional investor base. For mid-sized companies, the article suggests private credit can be a viable alternative to other funding sources.

The article describes a slowdown during 2022 and 2023, when rising inflation and interest rates led PE funds to pause deal activity, reducing distributions and fundraising. Since then, valuations have partly recovered and M&A has revived, though not to previous levels. With interest rates down from recent highs and further cuts possible, Reeds writes that the PE market could see momentum in exits and acquisitions, and that an IPO rebound may be on the horizon. He concludes that the broader set of ownership and financing options could benefit U.S. mid-sized companies relative to international peers with more limited capital access.