Public Company Going Private
Hunter Wise is a nationally recognized resource on going private transactions. As a result of Sarbanes-Oxley legislation, as well as vast numbers of public companies being “orphaned” by their previous investment bankers, an increasing number of companies are considering withdrawal from the federal reporting system. Public companies going private means that a company no longer must report to the SEC, or to any exchange or quotation system.
Multi-billion dollar market cap companies to Bulletin Board firms are taking this step. Few C-level executives contemplated public company going private when the stock market was soaring and corporate governance was relatively inexpensive and easy. In the post-Sarbanes-Oxley world, however, more public companies are turning private, fewer private companies are going public, and the number of foreign companies listed on U.S. stock exchanges has steadily declined.
There are at least ten reasons for any public company going private. They are:
  • Under valuation of the stock
  • Adverse trading pressure
  • Desire to significantly reduce compliance costs
  • Ability to enjoy increased confidentiality
  • Better access to capital
  • More operational flexibility outside the public spotlight
  • Liquidity opportunities for shareholders
  • Avoid a pre-emptive strike on an under valued company
  • Increase strategic opportunities
  • Eliminate Sarbanes-Oxley and Section 404 pressures and costs
In addition, for micro-cap or small-cap companies with one or more of the following issues, going private should seriously be considered.
  • Two analysts or less following the company
  • A market cap less than $150 million
  • A price/earnings rates less than 6
  • A stock price less than $10 per share
  • Trading volumes less than 100,000 shares daily
  • Fewer than 30% of the outstanding stock held by institutional investors
  • The industry is out of favor
  • Public company quarterly reporting is hampering long-term growth
  • Public company compliance costs are hampering long-term growth
  • No useful currency
  • A need for liquidity