If you assemble the ingredients of a fast-growing company: an affable management team, ultra-low interest rates, skilled corporate finance advisers, and a sprinkling of testosterone-fuelled buyers whose coffers are overflowing with cash and then light the blue touch paper, it’s not surprising that the ensuing auction or Initial Public Offering (IPO) can often get out of hand.
Potential buyers are usually out-bidding each other for the prize, in some cases pushing the price into the stratosphere with little logic or reference to traditional valuation models.
The same pattern applies with both private sales and public listings. The feeding frenzy hits new peaks as groups rush to raise funds. Companies across the globe have tapped up investors for trillions of dollars of equity and easy-to-borrow debt.
It’s too easy to spend other people’s money when fund managers are criticised for keeping cash that has been raised in the bank. Then add to that the hundreds of thousands of new investors who spent part of lockdown stock picking on the internet, day trading or running their own portfolio – driving quoted company valuations even higher.