Companies Going from Public to Private—Is This a New Trend?
A strong vision, dynamic and robust leadership, exceptional business plan, solid engineering implementation processes, and resources are some of the key factors that come together in positioning a company for success in the marketplace. Funding is an important element in the resources bucket. Every company needs adequate funds—not only for its current execution plans but also for research, development, future plans, and investing in employees—to create a long term strategic roadmap.
In the lifecycle of a company an IPO is a significant milestone to generate the required funds to empower its operations. While this is great from a funding standpoint, we all know the responsibilities and mandates that follow going public—meeting the stock exchange and analyst expectations, being answerable to the shareholders, and closely tracking quarterly revenues and profits—can make the company have a short-term view of its operations, diluting its focus on the long-term vision.
You can almost draw parallels here to someone living hand to mouth rather than thinking through his financial plans from a savings and retirement standpoint. Despite these mounting pressures, the market continues to see companies filing for IPO, and the most recent one is Twitter, who tweeted its intention. Analysts regularly forecast companies that will head into IPO and track to see how IPO patterns are shaping up each year to see how the market is faring.
If you flip the coin, you will see another interesting trend—companies that succumb to the pressures of being public and are beginning to go private, either through internal funding or through private equity firms that buy them out. Examples of giants who continue to be private include Fidelity Investments and Toys ‘R’ Us. Outside this view into generating funds, you have to accept there are noteworthy differences between public and private companies.
Whether companies tend to be any more profitable after going private is yet another interesting area of ongoing analysis. Blackberry has been rumored to consider going private to focus on its long-term goals, but it has also been talked about for active lobbying to be purchased, especially after Microsoft’s Nokia purchase. Similarly, the industry is closely watching Dell’s recent news about going private after twenty-five years of being public.
In cases such as these, the decision, carefully weighed by the board and the shareholders, is in the best interest of the company, the shareholders, and the employees. Dell is an especially important example in helping us determine whether going private is becoming a new trend and whether doing so makes a sizeable difference in the company’s vision and profitability a few years down the line. Some analysts have predicted that may not be the case for Dell.
