Going Private
Candlefocus EditorWhen a company goes private, it generally moves away from public oversight, including shareholder participation, reporting financial statements quarterly and filing other required documents with securities regulators. The process of going private often gives the corporation the leverage to make knee-jerk decisions in order to improve operations and protect its bottom line.
In most going-private transactions, a private investor or group of investors, such as management, private equity, or a venture capital firm, will first take a stake in the company and then attempt to buy out the rest of the shareholders using their own equity and/or debt. To accomplish this, the buyer may use cash, stock, or a combination of both. The exchange of funds and/or stock between the two companies dictates the cost of the transaction and its ultimate success or failure.
One of the main advantages of going private is the added flexibility it offers the company. Private companies are able to make decisions without needing to address the distractions associated with public markets. Additionally, better incentives exist for executives and employees, which further allow a company to streamline operations and focus on the business goals of the company.
The downsides of going private are vast. The company may be underfunded and unable or unwilling to invest in growth. It also means an exit from public markets with the associated liquidity and cost benefits. Additionally, the private investors may not have the same positive ethos as the public shareholders they replace.
At the end of the day, going private is a significant decision that needs to be weighed with the utmost care before being made. Companies should carefully analyze the costs and benefits of such a move. Ultimately, it’s an extremely complicated decision with many possible outcomes.