Public Companies Are Increasingly Going Private

by Grant Thornton, LLP

Recently, it was the mad rush for private companies to go public and offer initial public offerings (IPOs). Now with a lethargic stock market, and new stringent regulations for public companies set forth by the recent Sarbanes-Oxley legislation, the amount of public companies going private since July when Sarbanes-Oxley was passed has increased 26 percent over the similar time period one year earlier.

There are many reasons for a public company to go private and do a "reverse IPO."

"Many of the recent regulatory changes benefit shareholders by making executives and directors more accountable," says Edward Nusbaum, Grant Thornton's chief executive officer. "While this is great from a shareholder's perspective, companies that are publicly traded may now face additional burdens. Most of these regulatory reform provisions are focused squarely on public companies — while their private company counterparts do not share these same requirements.

"These recent regulatory developments have increased the cost of being a public company," Nusbaum says, adding that, "going private could save a company accounting and legal fees associated with Securities and Exchange Commission filings, as well as executive time."

Going private provides additional advantages by eliminating some of the pressures associated with being a public entity, such as reducing the pressure to maintain growth. By going private, a company also regains confidentiality because the company no longer has to disclose compensation and financial details to the public, and control is put solely in the hands of the new owners. Additionally, companies that go from being public to private could possibly save the costs of defending themselves in shareholder litigation.

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