The sub-prime disaster ‘only a drop in the bucket’

BVWireIssue #65-1
February 6, 2008

The latest posting from Rob Slee ( outlines the repetitive, ten-year transfer cycle of the U.S. economy.  To paraphrase:

Basically, the first few years of every decade (think 1980-83, 1990-93, and 2000-2003) are recessionary years for the private capital markets.  The fourth year of every decade is a transition year to profitability.  Years five to eight are the go-go years; the private markets are open for business, when we feel the need to over-build, over-leverage, and ‘over-’ just about everything else…The economic house-of-cards starts falling in the eighth year (see 2008), and totally flattens by the end of the decade. 

The economy has already tipped to the “dark side,” Slee says, beginning with the sub-prime slide and the current imbalance in asset classes such as private equity, hedge funds, and credit card portfolios.  Business owners have until mid-2008 to sell, “or they will need to hold their companies until 2015 or so before they can maximize a sale,” he predicts.  “These asset classes, which represent trillions of dollars, will be reset over the next three to four years, making the sub-prime thing seem like a drop in the bucket.”

How can business appraisers help shield their practices from any looming downturn?  They can advise owners on implementing a conceptual business model now, Slee says.  That translates into businesses owning—and leveraging—all intellectual capital and outsourcing all processes.  “A good goal is to leverage intellectual capital by at least a 5:1 ratio.”   Top-performing companies leverage their IC by more than 50:1, Slee tells business owners and their strategic consultants.  “You’ve got work to do.”  To read his complete article, “Get Strategic—or Get Out,” click here.

Private cost of capital—good news for 2008?  Slee is continuing to develop data on private cost of capital (see BVWire™ # 63-1).  He will be speaking to the NY State Society of CPAs at their annual BV conference on May 19, 2008, in a talk titled "Private Cost of Capital."  In the meantime, more law and business schools have picked up his course on private capital markets.  “Imagine a world in which lawyers and MBA's are value-added to Main Street,” he says.  Imagine business appraisers adding value right next door.  “Now that's a world I want to live in.”

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