You may have noticed some public companies are moving to a private company structure, and more of them are doing it voluntarily. Dell is the latest high profile publicly traded company looking to go private, and Microsoft is lending them $2 billion to make it happen. Maybe it’s the activist shareholders that move in to replace the slate of directors, or the influence of global issues on stock prices or maybe it’s the regulators, but the pace is definitely picking up.
The issue has always been about financing and the perception that it was easier to finance the growth of your company by issuing shares and tapping into the public markets when you needed more money. With the growth in the number of players in the private equity space, and the demand from investors for an investment alternative that is not pulled and pushed by stock market volatility, keeping a company private is becoming a more interesting option.
Owners should be looking for a financing source that recognizes the features peculiar to their business – one that continues to push their growth forward, even if stock markets are not performing well. They want a stable source of financing representing patient capital. Increasingly, the public markets are not meeting the needs of companies in their quest to finance growth.
The faceless owners of shares in a public market are often disinterested and with a short term focus. But for those companies interested in growing with a strategic partner that really understands their business, staying private can give you a leg up. A private partner understands your business and can provide strategic advice, and they share your desire to grow the company. Things can get tough though if your objectives for the company begin to grow apart. For that reason, maintaining great relationships with your private equity funders is critical to your success.
Shared ownership has been used successfully by many private companies to reward key employees, broaden the shareholder base with committed partners, and pave the way for a succession plan and exit strategy for the founders. You don’t need a public company to earn the commitment of your employees, and you can structure the reward system in a way that makes sense for your company and your key employees.
The time and effort your company will spend putting together a prospectus, meeting with investment bankers, lawyers and regulators might be better spent cultivating a relationship with private lenders and your employees. Don’t discount your employees as a source of capital and as committed partners in the success of the business. As you grow a successful business, your access to private capital becomes easier.
Taking your company public used to be the ultimate goal – the key to monetizing your investment of time and money in your business – but don’t be too eager to rush to a public offering. You may find greater success as a private company.