PicoBlog

I am counting both of these as Ws.
Yeah, Elon bought twitter and not Tesla, but we are rounding up here.

But everyone is dropping one of those right now.
And I wanted to spare you from my uneducated half guesses.

So instead of making wild, silly predictions that I will never look back on, I wanted to draw a line in the sand and make a declaration.

One prediction that I am confident is right.

The twitter deal was an overpriced take private.

When a company goes public, it emerges out of the private market, where there is no exchange to sell shares, and onto an exchange, where normal people can buy and sell shares all day long.

IPOing is so engrained as an end goal for companies, that it is often considered the last stop on the path of entrepreneurship. The sign we made it. We cashed out.

But- being public isnt the end, it is just a bus stop on an ever evolving journey.

Sometimes, someone thinks a company is worth more than the collective thinks its worth. Elon thought twitter was more valuable than the market (all of us) thought it was.

And if that person has the connections, they can raise the funding to take a company off the public market and become private again.

You have to pay a premium over current share price to get this done.
The bigger the deal, the smaller the premium.
But 30-40% is a solid target.

2021 was a record breaking year for IPOs.
There were 1035 IPOs on US markets. An all time high.
2022 saw just 180, a 7 year low.

Looking at DTC brands, valuations are down 75% from 2021.
So new IPOs are drastically underperforming compared to legacy public holdings.

This happened for a ton of reasons:

Out of all 2021 IPOs, 478 are down.
276 are down more than 50%.
174 are down more than 75%.
This is the playground for take privates.

Stocks being down from IPO is one ingredient needed for a take private market.
But the other big one is a disconnect in private and public valuations.

PE has to do deals.
Its the main part of their job.
They are Shepards of capital and need to deploy it.

The challenge is, it is very hard to do a private market deal right now.

A founder might want a minimum of 10x. Their friend got 14x.
Well Buckle, a public company with a billion in revenue and hundreds of stores, is trading at a 9x.

“Well we are better than buckle”…
Why? Your growth isnt there.
”it was a tough year”…

Buckle has net income.
They have revenue.
They have ops and leadership to run all these fucking stores.

So should a PE group fight for a private deal at 10,12,14x earnings?
Or should they buy Buckle for 11x?

We are in an environment where public deals are cheaper than private deals.
That is unhealthy.

Public markets get a premium for being liquid, safe, and regulated.

The fact that premium is gone leads to an arbitrage moment.

Private market PE deals will be dead in 2023.
They dont make sense.

I think rates will continue to rise in 2023.
But- they will peak, and hold flat.

That signal of a rate top is a great thing for leveraged acquisitions.
They can get a deal done at 10% interest rates, and then refinance on the way down.

This will help juice returns, but still cause lower valuations at time of sale.

Being public is very hard.
The market and investors demand a pretty rigid set of things.
They dont like to see a radical change or a shift in strategy.
Without a god-king like Zuck, if you try to change the business you will be fired.

Its why public companies are so often resigned to mediocrity.
And why start ups are able to disrupt them.

Public markets value predictability.

Taking a company private allows you to make radical change without the pushback from investors.

You can fire 75% of the staff. You can shrink topline revenue.
You can throw guidance out the fucking window.

Buzzfeed is my poster child for the take private.

To buy Ridge, I would need so much money. It is worth a billion dollars to me.
But to buy buzzfeed, all you need is 150m.

Buzzfeed- Which owns huffpost, complex, Hot ones. 400m in revenue. Billions of site vistors.

Buzzfeed is a steal. If you are reading this and are a PE fund, tap me in. Id love to run this deal.

Casper already went.
Purple Mattress already went.

If you raised more than 50m in VC capital, and are 50%+ under IPO price, I bet you get taken private.

ncG1vNJzZmirlZa7pq%2FOpmWsrZKowaKvymeaqKVfpXyiecGrpqSdnmKwrbvCpGSiq12ntqi002arsKGTmnqiecOasA%3D%3D