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December 15, 2003
Going Private
Posted by Carole Matthews at 2:03 PM
The number of public companies going private has increased since the Sarbanes-Oxley Act was enacted on July 30, 2002, according to a recent press release published by accounting and business advisory firm Grant Thornton. From August 2002 to November 2003, 30% more companies went private as compared to the 16-month period preceding the initiation of the Act.
Why are so many going private? Most notably, the Act has placed very strong responsibility, and liability, on CEOs of public corporations. Going private reduces a company's risk to shareholder litigation and affords the once public company a new sense of control and confidentiality, which are appealing benefits, according to Grant Thornton CEO Edward Nusbaum.
In Five Ideas to Watch from the Nov. 2003 issue of Inc., writers Bobbie Gossage and Patrick Sauer noted a survey in which 80% of the 209 public-company CEOs surveyed wished they were running private companies. Their main reasons: Sarbanes Oxley paperwork and related exhorbitant accounting costs.
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Let's see, companies go public to access the capital markets for expansion... or in these cynical days... to "cash in and check out".
So why would a company want to go private...
do they no longer need money to expand?
Are they suddenly so profitable internally (like Chik-Fil-A) they don't need outside money?
Or did they suddenly realize that going public is like steering a supersonic jet by committee if the economy is so turbulent?
I'd like to see some case studies about companies that DID return to private ownership.
But if you're profitable enough to buy out your shareholders... why did you need them in the first place?
the lack of interference from share holders etc... would be enough of an argumenet for me.
share holders tend to think short term, they want to see a return on their investment ASAP. With some sectors this isn't possible, look at how long it takes to develop and test medications.
With areas like that you need long term thinking not short term profit.
Going Private ESOPs allow corporations to purchase their shares and provide for deferral of capital gains tax liability normally paid by the sellers. It also also allows the corporation to finance share repurchase debt with tax deduction of principal repayment as well as interest.
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