VideoSchmidt says he has full support from his investors to spend the next 12 to 18 months integrating Monarch's businesses and installing Bright Now's platform. "The one big benefit of the private sector is that you end up with a business partner instead of a shareholder," he says.
That's a common sentiment. "People say it must be nice being private — you don't have to report to a lot of people," says Klock. "That's a misconception. I have a dozen institutional people I report to every month and three different VC firms." The difference, say private-company executives, isn't the level of reporting, it's the nature of the relationship. "It always amazes me to sit in on analyst calls for public companies and realize the questions are just scratching the surface," says Schmidt. In Bright Now's case, he says, he not only meets regularly with investors, he also relies on them "in many respects as mentors."
Typically, of course, those investors are still looking for some sort of exit strategy — including going public again. But executives at once-public firms don't seem keen on that idea. While opportunities may arise sooner, says Schmidt, he's comfortable keeping Bright Now private for the next three or four years while it digests Monarch. If High Falls Brewing needs more money, adds Henderson, "I think there are more than enough places to go besides the public equity markets." And while going public again is a possibility for Comp Benefits, it probably won't happen before 2005. "That's assuming there is a capital market," says Klock.
In the next few years, there will likely be far more companies dropping out of the public markets than joining them. To steal a phrase from Wall Street, going private is the next big thing.
Sidebar: Going Private...
There are several ways to take a company out of the market, although going private typically involves some combination of the first two of these techniques.
Leveraged Recapitalization Merger. The classic going-private method, involving a proposal to merge with an acquisition company created by management and financial sponsors for the purpose. A special committee of the board typically is established to negotiate, and may feel compelled to solicit competing bids.
Tender Offer and Merger. Tender offers are common when there is a need for speed, since they can close in 20 business days (rather than the three months or more for the merger proxy-vote process). Tenders can be used to gain majority control to ensure a smooth merger process, but this can require a pricey bridge loan until the post-tender merger closes. Tenders are more common when management's goal (and often a condition of the offer) is to gain the 90 percent of shares needed to execute a short-form merger.
Reverse Stock Split. Also known as 'the squeeze out.' A rare technique used in small companies where the majority of shares are closely held by a few controlling shareholders. The split is engineered to leave minority shareholders holding fractional shares, which are paid out in cash. The goal, typically, is simply to eliminate public reporting requirements (and those shareholders), rather than to recapitalize the company.
Asset Disposition. Acquisition companies purchase all of the company's assets through a planned liquidation that returns funds to shareholders. Although not typically thought of as a going-private transaction, the effect can be similar if management purchases some of those assets with outside funding.
Sidebar: Wanna Buy Your Company?
In this era of intense investor scrutiny, everyone from private equity advisers to CFOs is circumspect about the personal payout that comes with a buyout. 'The CFO is a fiduciary of the company, and ought not to be directing the company to where his best personal interests lie,' warns attorney John LeClaire of Goodwin Procter. But make no mistake: taking a company private can be the most lucrative move of a CFO's career.
In fact, CFOs who take their companies private often wind up with a 1 to 3 percent equity stake and a key role as liaison with the bank and equity investors. 'It can be a great outcome for the CFO,' concedes LeClaire. Along with the payout that comes when the firm exits, the CFO of a successful effort can expect to be tapped by private equity firms to repeat that performance elsewhere.
Of course, personal interests aren't always financial. CFO John Henderson and the executives of Genesee Corp. orchestrated a buyout of the company's brewery after a sale to outsiders fell through. Rochester, New York, natives all, their move saved the 125-year-old hometown institution, and 400 jobs that went with it. As if that weren't satisfying enough, they're also now owners of Genesee Cream Ale — something of a fabled label in the Northeast. Recalls Henderson, 'We had a couple to celebrate the event.'
Chart: Going Private - Deals are steadily increasing
Year Number of Deals
2003* 93
2002 316
2001 282
2000 197
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