Why companies go private?
What is the main reason for a company to go private?
For example BlackBerry. What exactly going private will change in the business, and how it will help the company to do better? I see it as there will be the same sales, margins, same cash burn, same everything but the ownership. I also don't understand why it is in a hurry to do so.
When I google "why companies go private" I get responses like "it is expensive to be listed". I am not happy with this kind of explanations.
Any help is very appreciated. Thank you!
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So this implies that people who potentially will buy out BB are OK with the cash burn (i.e obscene r&d)?
1) Less transparency, meaning management can run the company the way they want to without shareholders breathing down their necks and less regulation that comes with running a public corporation.
2) You may be wondering why the stock price matters to Blackberry, since even a major drop in share price has absolutely no affect on a company's balance sheet, but it definitely hurts company management who hold a significant number of shares. Stock price is also seen as an indicator of the health of the company, thus a shitty price means it will be hard for the company to finance their business.
3) From a PE standpoint, they want to control the company's management that has a track record of overspending, bad decisions, and they want to shed unwanted assets and divisions. They bring in management consultants to tell the company management what they're doing wrong, or how they can improve the bottom line. They then flip the company to the public, or they sell it to another PE firm.
The "Company" itself doesn't decide to go private. It's usually some other entity (i.e. PE) or person (could be it's own management team) that decides to take it private. Whoever took it private is hoping that it can turn it around and make a sizable return on it. This is often in the form of an LBO.
It also allows the company to take a longer term perspective when making strategic decisions (i.e. they aren't worried about next quarter's results and the market's reaction, they are worried about the long term creation of shareholder value). No idea if there is any empirical evidence for this but that is what is often recited as a rationale for management buyouts.
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