Death of Public Companies? Oh, Please!

Yes, private equity is buying up companies at a record pace. But get real about the true impact. A story in today's USA Today attempts to make a big deal out of the shrinking number of public companies. But the numbers tell a very different story.

The story starts:

"Investors might not realize it, but private equity's pubic-company pig fest is leaving them with fewer choices when it comes to U.S stocks."

It goes on to explain that with yesterday's Bausch & Lomb (BOL) deal, there's one less public company. (Two if you include today's $7.8 billion deal for Alliance Data (ADS).) So far this year, the story says, 217 companies have been taken out. At the same time, there have been 107 offerings (some, which the company didn't say, were private-equity-related going public.)

The net difference is a loss of 110 stocks. In an attempt to put all of this into perspective, the story said that the Wilshire 5000 has shrunk by 51 stocks, or an earth-shattering 1% (2% since 2005.) The index is now down to a woefully small 4,910 stocks.

Sounds scary, and makes for a good headline, until you realize that the computer-generated index has been below 5,000 in the past (thank you, merger booms) and, in fact, has been below 5,000 for several years. It has also been well above 5,000.

The reality of this story is that markets ebb and flow, and so do IPOs. At some point private equity, in an attempt to beat the heat, is going to have an urge purge and unload companies back on the public. Should provide a bumper crop of opportunities for short-sellers and a return to the bad old days of the insane and silly IPOs.