The Road to Private

The past 12 months have been a whirlwind of M&A activity & public debuts. As many companies prepared to go public and wrestled over whether to do a traditional IPO or merge with a SPAC, several public companies moved in the opposite direction. They announced they were going private.

In fact, some experts are now predicting that the flood of IPOs and SPACs will be replaced by a surge in companies leaving the public markets. Companies including our own clients Houghton Mifflin, Citrix, and MoneyGram have already chosen this option.

What’s driving the activity? Private equity firms need to put record amounts of capital to work, and businesses can benefit from their operational expertise and ability to execute a buy-and-build strategy.  For example, Houghton Mifflin will advance its long-term growth strategy by leveraging the expertise of Veritas Capital to accelerate the company’s momentum and build market share. Other reasons include:

Protection: There is less risk, more control, and you are out of the public eye. This is especially important now, as more rules and regulations are coming from the SEC. Companies that do not comply will be given hefty fines—and they must be paid.

Equity: Going private can mean increased financial gain for its C-Suite and shareholders. For example, Tegna (NYSE: TGNA) just entered into an agreement with Standard General L.P. to acquire its remaining 95 percent stake for $5.2 Billion. As part of the deal, shareholders receive $24.00 per share—in cash, representing a 39 percent premium to Tegna’s unaffected close share price on 9.14.21. In addition, Tegna will no longer need to focus on the regulatory and reporting requirements of a public company. This will open capital, time, and the ability to focus on long-term goals.

More flexibility: Leaders of private companies have more flexibility and less pressure to make risky bets. Consider Tenneco Inc. The company, trading under the ticker (NYSE: TEN), agreed to be acquired by Apollo Global Management in February for $1.8 Billion at $20 a share. This is a 100 percent premium over the stock’s closing price of $9.98 on 2.22.22. When the transaction completes in the second half of this year, it will no longer need to deal with the added pressures of the market or shareholders. It will be able to do what it does best—focus on the automotive industry and corporate initiatives for its clients.

Survival: Often, due to funding or some of the previously mentioned issues, there is little choice but to merge or be acquired by another—and in so doing, go private. As we’ve seen, this can save the company, its employees, and the brand.

Journeys have twists and turns, and often a take-private today is a future IPO. It is important to have the right partner to guide and counsel you throughout your business lifecycle. For example, McAfee, which completed its take-private this month, went public in 1992 and then again in 2020.

Maintaining public company financial reporting disciplines as a private company is a best practice for many companies involved in a take private. Creating financial reports on par with your publicly-traded peers for your external stakeholders, lenders and company executives is important as you move to the next stage of your company's life cycle.