Definition
Going Private
Going private occurs when a publicly traded company transitions to private ownership, meaning its shares are no longer available for purchase on public stock exchanges. This can happen through the company’s repurchase of its own shares or through purchases made by an outside private investor, often facilitated by private equity firms. Once the process is complete, the company ceases to have the extensive regulatory requirements placed upon public companies and generally enjoys greater strategic flexibility.
Examples
- Dell Inc.: In 2013, Dell Inc. went private in a $24.4 billion deal led by its founder Michael Dell and the private equity firm Silver Lake Partners. The goal was to enable the company to execute long-term strategic plans without the pressures of public market scrutiny.
- Hilton Worldwide Holdings Inc.: In 2007, Hilton was taken private by The Blackstone Group LP for approximately $26 billion before eventually returning to public markets in 2013.
Frequently Asked Questions (FAQs)
1. Why do companies go private?
Companies may go private to avoid the costs and scrutiny associated with being a public company, gain greater control over the company’s strategic direction, and implement long-term strategies without short-term pressure from public shareholders.
2. How does going private benefit shareholders?
Shareholders typically receive a premium on their shares above the market price at the time of the transaction, providing immediate monetary value. However, they lose the potential for future gains if the company performs well as a private entity.
3. What are some risks of going private for employees?
Employees might face uncertainty regarding job security, changes in management practices, or shifts in company culture. However, there can also be positive changes such as greater agility and investment in growth.
4. Is regulatory approval required for a company to go private?
Yes, going private often requires approval from both shareholders and regulatory bodies to ensure that the buyout process is fair and transparent.
5. What is the role of private equity in going private?
Private equity firms often play a significant role, providing the necessary capital to buy out the public shareholders and sometimes taking on a guiding role in the company’s new strategic direction.
Related Terms
Leveraged Buyout (LBO)
A leveraged buyout is a financial method typically used during going-private transactions where a significant portion of the purchase price is financed through debt. The debt is often secured against the company’s assets.
Tender Offer
A tender offer is a public bid to shareholders to sell their shares at a specified price, often at a premium. This method is frequently used during efforts to take a public company private.
Privatization
Privatization refers to the transfer of ownership of a business, agency, public service, or public property from the public sector (government) to the private sector.
Reverse Merger
A reverse merger is a way for a private company to become public by acquiring an already-public company, a process sometimes considered as the opposite of going private.
Online References
- Investopedia - Going Private
- Harvard Business Review - Why Go Private?
- SEC - Taking a Company Private
Suggested Books
- “Private Equity: History, Governance, and Operations” by Harry Cendrowski
- “Barbarians at the Gate: The Fall of RJR Nabisco” by Bryan Burrough and John Helyar
- “Private Equity Accounting, Investor Reporting, and Beyond” by Mariya Stefanova
Fundamentals of Going Private: Corporate Finance Basics Quiz
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