Some firms are better off private

Everyone knows dotcom stocks joined the 90 per cent club when the bubble burst, falling to a tenth of their peak value. What is less widely appreciated is that many media stocks went the same way. Shares of PR firms were particularly hard hit by the bust and subsequent slump.

Two of these firms, Incepta and Chime Communications, talked about a merger last month and from the outside such a deal would make sense as both are struggling with the aftermath of their fall from grace. They apparently could not agree on price but provide a timely reminder of why it makes so little sense for such businesses to be listed.

Agreeing financial terms for a merger – justified in public and to third parties without one or other of the egos in charge suffering a loss of face – is a tall order. When private, cooking up an acceptable financial formula is much easier.

That, however, is just a small part of why such businesses are better off private. Although in theory a quote aids growth, a failure by Incepta and Chime to control their acquisitions played a part in their performance.

Founders’ and key executives’ potential windfall from a listing is also double-edged. If they do cash in, they could lose their motivation and leave. Alternatively, if they are restricted from selling and shares subsequently crash, they could also be left demotivated. If that were not trouble enough, a collapse in share price makes it harder to attract and retain clients.

This is not a recent phenomenon. Shandwick, for instance, suffered after the 1980s boom, and such problems are not confined to PR – they afflict most people businesses. Look at the problems a listing has caused headhunter Whitehead Mann and other consultants down the years – compared with the stability of, dare one say it, Brunswick. Some things are best kept private.

anthony.hilton@haynet.com

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