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'Companies that stay private too long may not have the best exit strategy': IPO expert

McKenzie DeGroot
Segment Producer

Despite rocky IPO debuts, 2020 is starting off well for newer stocks like Uber (UBER) and Lyft (LYFT), which both went public in 2019. Both are up so far this year, and recent filings from Reynolds and OneMedical signal momentum as the new year kicks off.

The largest IPO of 2020 is expected to be GE Healthcare at $60 billion, which would be double the size of vacation home rental company Airbnb, also expected to go public this year.

Still, companies overall are staying private longer than they have in the past, as private funding increases and technology unicorns become more common.

“There's a lot of liquidity, perhaps excess liquidity, in the private market that's pushing up these valuations. Private equity is not in business to stay private forever,” Kathleen Smith, co-founder and chairman of Renaissance Capital, told Yahoo Finance’s “On The Move.”

But, Smith said, “companies that stay private too long may not have the best exit strategy.”

“Unfortunately the private companies are being run without a view to profitability, many of them. So to be big and private and unprofitable is not a good equation for getting to be a public company,” she said.

Screens display the Uber Technologies Inc. logo above the floor of the New York Stock Exchange (NYSE) during the company's IPO in New York, U.S., May 10, 2019. REUTERS/Andrew Kelly

Renaissance IPO ETF (IPO), which holds the most recent 60 IPOs, is also touching highs thanks in part to stocks that underperformed in their debut.

“Uber is one of the top holdings in the Renaissance IPO ETF and the stock is up over 20% so far this year,” said Smith. “Uber is going to go into major indices. And so we'll hold it for two years, the typical holding period for the portfolio. And at that point, for example, Facebook was picked up by the S&P 500 after two years.”

McKenzie DeGroot is a producer at Yahoo Finance. Follow her on Twitter: @degrootmckenzie

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