Going Private

Key Highlights

• Going Private refers to the process where a publicly traded company is converted into a privately held company by buying back all of its publicly held shares.

• Types includes management buyout (MBO), leveraged buyout (LBO) and tender offer.

What is Going Private?

Going Private refers to the process where a publicly traded company is converted into a privately held company by buying back all of its publicly held shares. This means the company’s shares are no longer traded on a public stock exchange, and ownership becomes limited to a small group of private investors, such as founders, private equity firms, or management.

Why Companies Go Private?

There are several strategic reasons a company may choose to go private:

• Reduce Compliance Costs: Public companies face heavy regulatory and disclosure requirements. Going private helps save on these costs.

• Avoid Market Pressures: Public companies are under constant pressure to meet quarterly earnings expectations. Being private allows long-term planning.

• Simplify Operations: Without the need to report to shareholders or analysts, management has greater control and flexibility.

• Restructure Without Scrutiny: Turnarounds or major business changes can be executed more privately and efficiently.

How the Process Works?

• Buyout Offer: A buyer (often a private equity firm or existing management) makes an offer to purchase all outstanding shares.

• Board Approval: The company’s board of directors evaluates and may approve the offer.

• Shareholder Vote: Public shareholders must approve the transaction, often at a premium price.

• Delisting: Once completed, the company is delisted from stock exchanges and becomes privately held.

Types of Going Private Transactions

1. Management Buyout (MBO): The existing management team buys out the company.

2. Leveraged Buyout (LBO): A private equity firm finances the acquisition, often using debt.

3. Tender Offer: A buyer offers to purchase shares directly from shareholders, usually at a premium.

Example

In 2013, Dell Inc. went private in a $24.9 billion leveraged buyout led by its founder, Michael Dell, and private equity firm Silver Lake Partners. The goal was to allow the company to restructure away from public market pressure.

Implications for Stakeholders

Stakeholder	Impact
Shareholders	Usually receive a premium on their shares but lose ownership
Management	Gains more control and less public oversight
Employees	May see changes in operations or strategy
Public Market	Loses access to company’s financial and operational data