This is the last piece I’ll be doing for IR magazine. As of July 1, I’ve taken my act to Newsweek, and I hope you’ll come find me in the magazine and on Newsweek.com. I’ll miss this spot, in part because it gave me a platform to reach a new audience.
But I haven’t just been a contributor to IR magazine – I’ve also been a reader of its contents. And that has given me better insight into the area I cover and think about: the management and behavior of publicly held companies.
I leave with a parting thought (with apologies to Mark Twain): reports of the demise of the public corporation are greatly exaggerated. Yes, vast global forces are conspiring to take more and more stock out of the hands of public investors in the US and Europe: private equity and hedge funds, stock buybacks, and buyouts of western firms by state-controlled entities in China and Saudi Arabia.
But this doesn’t mean the publicly held company is going the way of the scimitar-horned oryx. Those predicting doom for publicly held companies are looking at only half the story. Sure, private equity firms and hedge funds are taking companies private at a record pace. But in order for today’s Masters of the Universe to harvest the fruits of their financial engineering, they need an exit strategy. And frequently that involves… an IPO. In other words, it’s a sure bet that many of the companies being taken off the public market today will reappear in a few years’ time, leaner, meaner and ready to share their returns with the masses.
It’s commonplace to hear private equity types crowing that hunting conditions are so good in part because more and more executives realize it’s an exquisite pain to be public. And there’s no doubt that being public comes with certain costs. But clearly those are costs worth paying. For in one of the market’s great ironies, some of the largest and most-talked-about IPOs these days are being made by private equity businesses. I don’t mean businesses owned by private equity firms, but the private equity firms themselves.
First came Fortress Investment Group, the huge hedge fund that went public last February. Now the Blackstone Group, the mammoth private equity fund whose gazillions have been made on the simple proposition that private ownership is better than public, has raised $7.8 bn in its June IPO on the NYSE.
Of course, pessimism surrounding publicly held companies is nothing new. Harvard Business School professor Michael Jensen penned an influential article entitled ‘The eclipse of the public corporation’. In it he argued that the public corporation had outlived its usefulness to a large degree, and that unstoppable macroeconomic forces like the rise of private equity firms would bring an end to the influence of publicly held companies. It was published in 1989.
