Last Sunday, I was perched firmly on my living room sofa watching the Philadelphia Eagles play against the Jacksonville Jaguars. Although I thought I was simply watching a game, it quickly made me think about life and business. It was a fascinating thing to watch. With all that had transpired in Mike Vick’s life the past five years (dog-fighting allegations, jail, cut from the Atlanta Falcons, loss of a $100M+ contract, bankruptcy, and complete NFL pariah), I could not believe that I was watching him deftly, accurately and intelligently carve up the Jacksonville Jaguars’ defense. Mike Vick was doing all the things that NFL pundits previously said he was unable to do during his tenure as the quarterback for the Atlanta Falcons. As I was watching the game and being mesmerized by the magnificent manner in which Mike Vick was playing the quarterback position, I began to think about the idea of second chances. It dawned on me, no matter how bad a decision (or series of decisions) one has made, whether in business or in life, individuals with talent and ability will continue to get opportunities at second chances.
I recently wrote an article, “The Decision,” that discussed the pros and cons associated with taking your company public. The question at hand is what happens if and when you take your company public, but things don’t go as smoothly as expected? The simple answer is, certain companies, disappointed with being a public company, have decided to conduct a going private transaction. These companies should view this as their “second chance.”
Going Private Transactions
Public companies that are dismayed with the prospect of continuing to be subjected to the strictures and requirements of being a public company, routinely consider whether the advantages of being a public company outweigh the disadvantages. Recent market conditions combined with the current regulatory environment have resulted in many public companies trading at values below the amount of cash on the companies’ balance sheets. With values trading below cash existing on balance sheets and these same companies facing increasing reporting and corporate governance requirements, many public companies have decided to proceed with a going private transaction.
Going private transactions can take a variety of shapes and forms. These transactions are typically structured as either a leveraged buyout or a management buyout. A leveraged buyout occurs when a private entity (typically a private equity firm or a venture capital firm) acquires a public company using a significant amount of borrowed money (bonds or loans) to meet the cost of acquisition. Often, the assets of the company being acquired are used as collateral for the loans in addition to the assets of the acquiring company. A management buyout occurs when the managers and/or executives of the current public company purchase a controlling interest in the company from existing public shareholders. From a legal perspective, a publicly held company is potentially eligible to convert to exclusively private ownership when it reduces the number of its shareholders to fewer than 300.
Although there are a multitude of reasons to forego being a public company (some of which are noted above), “going private” results in management being able to focus on long-term strategy without the distraction of public quarterly reports. Additionally, the added costs associated with increased regulations, the constant focus on top-line growth, analysts dropping coverage, small size of stock float, as well as low share prices and the distraction of quarterly reporting, all combine to push some companies back into the rather secluded world of privacy.
There are a number of CEOs and executives that are unhappy with all the attendant costs and headaches associated with being a public company. Pre-Initial Public Offering (IPO), these same executives were being told about all the wonderful benefits of being a public company, but little about the downside. As these executives are weighed down with the decision they made to go public, they are continually wondering whether they will ever have a “chance” to do it all over again. The answer is yes.
As Mike Vick recently told a gymnasium of elementary school students at Imhotep Charter School in Philadelphia, “[s]ome people in life don’t get a second chance – they just don’t. If you mess up and get a second chance, defend it at all costs.” Similarly, those executives that are fretting over the decisions you made to take their companies public, your second chance is waiting right around the corner in the form of a going private transaction. As Mike Vick is currently doing, take full advantage of it.