Elon Musk’s brilliant announcement that he is looking to take his pioneering car company private could enjoy darker implications for the broader market.
Myriad questions surround the Tesla collapse’s cryptic tweets earlier this week that he has financing in responsibility to remove the company from the public sphere in a deal he’s valuing at $420 a helping. Not the least of the issues is whether Musk violated securities laws by signaling the deal over Twitter.
However, if there is a legitimate buyer or consumers out there, such a move would raise the specter of what one analyst rings a “Tesla top”: a pinnacle in business risk-taking that signals a tipping immaterial for corporate America.
“While we are not superstitious by nature, we do fear this records looks an awful lot like other deals done at the peak of one-time cycles,” Nick Colas, co-founder of DataTrek Research, wrote in his commonplace note sent out Thursday.
He compared the potential Tesla move to RJR Nabisco’s take-private in 1988, AOL’s win of Time Warner in 2000 and even Goldman Sachs’ bundling of toxic mortgages in 2007 that investor John Paulson bet against and round into one of the most lucrative trades of all time.
Colas figures that it force take $57 billion to get the Tesla deal done, most apposite through venture capital. A deal of that size could advance that VC firms have gotten overzealous in their determination to put scratch to work, and that investors have fallen too deeply in love with disruptor houses like Tesla, which makes electric cars and whose architect is determined to break down the barriers to space travel.
“Is all that a remarkable to sell everything?” Colas wrote. “Obviously not, but it bears watching primarily if this deal actually goes through.”
The Musk move afflicted with amid a turbulent year for markets, which have been shocked by everything from presidential tweets to valuation and inflation scares. Tesla partitions have been volatile since the Tuesday tweets, rising definitely at first then giving back some of those gains Wednesday.
This doubtlessly has been a dizzying year for venture capital, and it wouldn’t be a shock to see some overambitious investor looking to do a massive deal.
In the second quarter alone, VC firms stated 3,686 deals worth $74 billion, another record for an toil that has continued to scale new heights, according to Preqin, which catches institutional fund flows and deal activity.
If it is indeed a VC firm behind the Tesla grapple with, that would take the industry’s footprint to a whole new level and stimulate concerns about broader implications.
“VCs are so flush with cash that they desperately require companies like Tesla — large, scalable, and levered to mega-trends groove on autonomous driving and clean energy — as much as Tesla needs them,” Colas weighted. “Musk understands that dynamic better than most.”
Colas afflictions that if Tesla disappears from the public markets, it will barter investors one less way to hedge against the violent rise of the bigger tech prestiges that have wobbled lately. In essence, it would mean investors “whim consistently be long ‘The disrupted’ and short ‘disruption,'” he said.
“Communal equity markets are packed with successful and highly profitable old-line troops,” Colas wrote. “That used to be a feature. Now, with tech-based disruption, it is a remarkably serious bug and the work-arounds are difficult and risky.”