It's the mega deals that hit the headlines, but what about the smaller companies?

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The Independent Online
IT WAS, I believe, Professor Schumacher who coined the phrase "small is beautiful" around a quarter of a century ago. Speaking from the perspective of my 40-inch-plus waistline and a 16.5-inch collar size, I have every sympathy with this view. The stock market, on the other hand, is on a different tack entirely.

Take the mega deals that seem an everyday part of market life these days. AT&T is to swallow Telecommunications Inc, also known as TCI - America's largest cable TV company. The purchase price is a mere pounds 30bn, but we are all getting very blase these days over the numbers attached to corporate deals.

Perhaps of more interest to UK investors is where this leaves British Telecom. This company is making too much of a habit of being left at the altar for investors to ignore the fact that it is significantly failing to become a global player.

Actually, telecoms is such a global industry that the shares should be worth supporting anyway. What is more, one big deal tends to beget another, so perhaps BT will feature in the headlines before too long. It needs to. And the deal will not be little when it comes.

At the smaller end, on the other hand, all is far from well. The 250 share index having picked up the running from the Footsie, is now languishing, shedding value while larger companies are actually recovering in price. The case for smaller company investment was hardly helped by the Regent Inns' profit warning.

Tremors travelled through the shares of inn companies, although this particular downgrade is probably more of an isolated incident than the market reaction indicates. Regent Inns has, after all, achieved a great deal in the past. But rather like Pierre Victoire, which finally threw in the towel last week, rapid expansion can put too great a strain on management.

Meantime, the illiquidity of smaller companies was thrown into stark relief by the over-reaction (in my view) to the news. With so much investing power concentrated in the hands of the big boys, it is perhaps hardly surprising that a disappointment sees investors jammed in the exit. Even so, such a reaction does seem unfair to smaller companies.

Somewhere, waiting round the corner, Nemesis waits for those investors who have been driving markets in a direction which appears increasingly to be set in stone. In continental Europe there is now a queue of smaller companies waiting to come to the market. But if you look at the state of the less-than-big boys in the US and UK - now markets number one and two respectively in terms of market capitalisation - you realise that the enthusiasm of the vendor owners might prove to be short-lived.

In this age of the equity saver, too much money is being concentrated in too few hands. But, while we see deals as big as that in the telecoms industry, is it any wonder that the really serious money managers see no reason to look too far down the list of companies before committing their resources?

Well, I remain as responsible as most, preferring to recommend the bigger companies whenever I am asked to comment in the media. There is a good reason for this. The downside - by and large - is less. Moreover, you stand a better chance of striking a chord with your audience. Investors have heard of BT, but may not be aware of Ionica (almost certainly to their financial advantage).

But this polarisation is worrying. The US Big Board index may be resilient, but smaller companies have been in a bear market since the beginning of the decade. And while deals like AT&T's continue to grab the headlines, this situation is likely to remain.

Brian Tora is chairman of the Greig Middleton investment strategy committee.

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