What is Going Private?
Going private is the process of acquiring most of the outstanding shares of a public company, so that ownership is concentrated with a small number of investors. A going private transaction may also be accomplished through a management buyout or a private equity buyout. Once a business has gone private, its shareholders can no longer sell their shares on an open market.
When to Go Private
Going private is a good option when the market price of outstanding shares is low, making it cheaper to buy them. A business is more likely to entertain this option when it is having difficulty raising funds by selling shares or bonds, which is a common problem for firms that have a thin market for their securities.
Advantages of Going Private
By going private, a business no longer has to make periodic reports to the Securities and Exchange Commission, so its financial statements are no longer available to the general public. This can represent a substantial cost reduction, since the firm no longer has to undergo quarterly auditor reviews or a year-end audit. It also no longer has to comply with the rules of the stock exchange on which it is no longer listed. A particular advantage of going private through a management buyout is that the firm is being run by people with an intimate knowledge of the business and its markets, as might not be the case if the buyout were to be made by an outside group of investors.
Disadvantages of Going Private
Going private means that shareholders will not be able to trade their shares on the open market. However, if trading volumes were already low, this does not represent a significant disadvantage.
