Coming just before the most impressive stock market boom in living memory, it’s become something of a cautionary tale for journalists – right up there with Fortune magazine’s lauding of disgraced energy group Enron as the most innovative company for six years running.
On the other hand, that issue of Business Week probably sold a lot of copies. For a savvy observer, it might even have provided a useful pointer that recovery was on the way, just as the flurry of articles in the Sunday supplements about the fortunes made by amateur property investors offered a sign the market was nearing its peak.
This recession has not reached its ‘Death of Equities’ moment. Public markets are nearing fresh lows and that leaves quoted companies little room to entertain delusions about their worth, but in the private company sphere, many are still trying to hang on to last year’s valuations – at least according to Mark Wignall, head of Matrix Private Equity Partners, who says business owners should ‘get real’ and come to terms with a new economic order in which uncertainty reigns and access to debt for acquirers is limited.
It’s hard to accept that the business you built and planned to sell at five or six times profits may now fetch just two or three. Some may accuse Wignall, and other investors who agree with him, of trying to drive down company valuations in order to get a better deal for themselves, though such an argument would ignore the fact that investors are sellers as well as buyers.
Like the Dow or the FTSE, the market for private companies is driven by greed and fear, and there is no reason to believe it should behave very differently. But while minute changes of sentiment towards publicly quoted companies are immediately priced into a stock, private businesses may have to wait until they put themselves up for sale until they get a sense of their value in the eyes of others.
That process may be painful. Judging by the the sharp drop in the number of M&A transactions last year, many are seeking to avoid it altogether, and for those who can afford to wait until well after the next ‘death of equities’, that may be a valid strategy. But the rest will have to adjust their expectations.
