Out of Stock
When your stock price is stalled and you can't hope to improve it, is it time for your company to quietly step back into private life?
At the tail end of an era that spawned the term "IPO
envy," opting out of the public sphere may seem inconceivable.
Look again. In the right circumstances, going private can be a
smart move.
"In the public markets, companies that are less than $1
billion in market cap often get lost in the shuffle," explains
Robert Bergmann, managing director of Los Angeles-based private
equity firm Centre Partners Management LLC. "[If] they have an
earnings hiccup, all the institutional investors flee the stock.
Going private can offer a number of advantages vs. being in that
drifting situation."
In fact, such entrepreneurial companies as BET Holdings II Inc.,
Mary Kay Inc. and Seagate Technology Inc. have gone the
start-up-to-public-to-private route. Yet taking a company private
is both risky and complicated. Several conditions should be met
before you consider such a move, says Ron Ainsworth, president of
Costa Mesa, California-based Trenwith LLC, the investment banking
subsidiary of BDO Seidman LLP, who points to several areas his firm
looks at when consulting with companies considering the move.
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"Obviously, you need to have a depressed share price,
because [otherwise] there's no rationale to go private,"
says Ainsworth. "After that, you look for three things: a lack
of shareholder liquidity, few analysts covering the stock, and no
access to public capital--meaning no ability for another round of
financing."
In addition, Ainsworth advises considering the overall health of
the industry and the financial impact of remaining public. "In
many cases, the industry sector is in the toilet," he says.
"Then if you look at the SEC reporting requirements, the costs
and liabilities of being public can be prohibitive."
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