A going-private transaction converts a public company into a private company, eliminating the public shareholders and consolidating share ownership under one or a few shareholders.
Public companies go-private to:
- reduce the expenses of being a public company, including financial reporting, regulatory, compliance, investor relations and professional services;
- increase operational flexibility and focus on running the business with a view to maximizing long-term value;
- implement an exit strategy for current shareholders or possible ways to achieve a transfer of business, more particularly with controlling shareholders;
- lessen the likelihood of becoming a target of potentially opportunistic buyers; and
- provide the target company and its management with access to a sponsor's financial and operational expertise.
A good go-private candidate will typically be strong, a leading player in its given industry, have substantial management depth, have a good client base, and have good cash flow and good margins. An ideal candidate will also be trading below intrinsic value, have a large block of shares held by insiders and be thinly traded.
Volatile stock markets, COVID-19 and the oil price crash, have combined to create an unprecedented opportunity. Many public companies are trading well-below intrinsic value and management or third-party sponsors have the prospect to acquire good businesses that should bounce back when the current crisis pass.
