Time To Go Private?

There is a lot of glamour and prestige that goes with being a CEO at a public company. Do you ever wonder if it’s worth it?

If your company has sales of under $ 1 Billion, it maybe time to consider going private. The cost of being public has increased 200% to 300% due to the Sarbanes-Oxley Act and the new SEC and exchange requirements. For a small company (say under $100 million) these cost can run over $300 to $400K per year. Most estimates of the yearly cost of being public for companies of $1 billion or more are over $1 million per year. This does not address the time and management attention that needs to be directed away from running the business and toward compliance issues.

We are just now beginning to see the full impact of SOX, 404 compliance etc. A year ago I talked to CEOs who were hopeful that some of these requirements might be “good things to do anyway”. Now the only people with anything good or hopeful to say about these new requirements are auditors and attorneys, certainly not CEO’s.

The largest cost could well be the increase in shareholder litigation. I have no idea how to estimate this cost, and I suspect it will be greater than the direct cost of compliance.

A company should consider going private if any of these statements are true:

Going private is not an easy matter either. Cost is normally $1 to 1.5 Million and it will take six to nine months, however unlike the SOX cost you will only have to pay it once. One important thing to do before considering going private, is to make sure that you really do have the required or recommended number of truly independent Directors. Also keep in mind no matter what you do, there will be litigation. You will be trading your stockholders for either an LBO fund or a private equity fund.

Imagine running your business focused on long-term goals instead of quarterly results and stock price. That would not only be a relief, it just might add to the bottom line.

Ralph Muse
Muse Consulting