Good timing might be a fine art but you can’t dictate the state of the market. David Soskin looks for some reasons to be cheerful when it comes to planning an exit.
The late Jimmy Goldsmith was a master of timing. Having built up a huge fortune over some thirty years, the story goes that the great financier visited New York in the summer of 1987 and sat down to have his shoes shined. The shoe shine man recognized the billionaire and regaled him with tales of his own portfolio, boasting about the rise and rise of its value. Having tipped him generously, Sir James immediately went to his office and telephoned his broker, instructing him to start selling everything. A few weeks later, the stock market crashed but by then Sir James had cashed out. When asked how he had escaped the collapse, Sir James observed, “when the shoe shine man is in equities, it is time to get out”.
Whether or not this story is true or apocryphal, timing, both for buying and selling, is everything. Most entrepreneurs ask at some stage how they can get some cash for their shares. But however desirable your business seems to you (and businesses always seem more desirable to the people who found and run them than they do to cynical outsiders), there is one way in which an exit can fail completely - one which is totally outside your control - and that is the state of the market.
There are times when markets are ship-shape. Optimism is the reigning emotion. There is profit and reinvestment momentum. Lots of cash swirls around. Economies surge. There is a greater appetite for risk. These are clearly periods when it is relatively easy to exit: in recent years, the period before March 2000 and from 2004 to the summer of 2007 were both outstanding windows of opportunity. But the NASDAQ crash of 2000 and, more recently, the credit crunch and global banking crisis of 2007-2009 have both led to a much tougher climate for exits. There has not been a single tech flotation on the London Stock Exchange since 2007. It’s easy to get despondent; but don’t.
I have now experienced four recessions: I remember only too well the 1970s (with its secondary bank failures and the Bank of England’s lending ‘corset’); 1987, when the world’s stock markets declined by their largest percentage in history; the terrible 1990-2 downturn which coincided with the first Gulf War and, in the UK, was exacerbated by our politicians’ obsession with the Exchange Rate Mechanism (a forerunner of the Single Currency) - nice timing for me as I launched my first business into that terrible market. And now the ‘credit crunch’.
All these bad times do come to an end. As Gordon Brown has demonstrated, no chancellor can abolish ‘boom and bust’, or at this point I should say ‘bust and boom’: that is just a by-product of the capitalist system. Despite the acute economic problems in the UK, 2010 has started off a little more optimistically than 2009, with the FT suggesting that, for the tech sector at least, the long IPO drought is coming to an end. The giant Blackstone Private Equity Group is said to be bringing a number of its portfolio companies to market soon with that of Travelport already announced.
For entrepreneurs, there is an important lesson here: however strong your business, it will be the market that dictates whether you will be able to realise your investment – and at what value – and not so much, perhaps surprisingly, the success or otherwise of your enterprise.
