How U.S. IPOs Lost Their Pop; One factor depressing the IPO market is competition from corporate buyers, whose offers with a lot less regulatory hassle.(initial public offering)

Byline: Henry Blodget (Blodget, a former securities analyst, writes for Slate and other publications.)

Google's much-ballyhooed initial public offering was supposed to spark a return to the vibrant U.S. IPO market of the 1990s. Instead, despite Google's success and a recovery from the dark days of 2002, the U.S. IPO market is still a shell of its former self. According to Thomson Financial, 53 companies have gone public on U.S. exchanges this year, a pace well below the yearly average of 553 in the 1990s. The biggest falloff has been in technology, where an average of 140 companies went public each year in the decade through 2000--more than the total number in the five years since.

The usual attitude toward this state of affairs is one of lament: something has gone wrong. Before joining this chorus, it makes sense to ask whether fewer IPOs is really a problem, as I would argue, or whether we are just returning to a saner trend after a long bacchanal. The answer depends in part on one's perspective. A strong IPO market is certainly a boon for investment bankers, stockbrokers, research firms and the financial media, who get a never-ending supply of stocks to sell, analyze and discuss. For these folks, the 1990s was nirvana, and everything since smacks of anticlimax.

For investors and companies, the conclusion is less clear. On average, IPOs do not make good investments. University of Florida professor Jay Ritter concludes that, excluding first-day performance (from which only those who get the pre-trading IPO price can profit), IPOs have underperformed stocks of comparable size by an average of 4.1 percent per year for the five years after the IPO. Investors who aren't in at the offering price, therefore, do worse than if they had just bought boring old stocks available every trading day of the year.

For investors who do get in at the offering price, IPOs are a major perk, especially when the media have whipped up a buyers' frenzy. For companies, going public has pluses and minuses, but having the option is a positive. An IPO facilitates the capital-raising process, provides a currency for acquisitions and offers a convenient exit route for early-stage investors. Most important, for the nation at large, a strong IPO market is usually a sign of freely flowing capital, which encourages innovation and helps keep the economy vibrant.

So, yes, on balance a healthy IPO market is better than a sick one. The problem: most of the factors behind the current slump are market forces, ...