Take-Private

What does it mean to take a public company private?

Take-private transactions, also known as public-to-private deals or P2Ps, occur when a publicly traded company transitions to private ownership. In this process, the company's shares are delisted from a public stock exchange and ownership is consolidated, often among a small group of investors. Buyers in take-private transactions primarily include one or more private equity firms. Management teams often collaborate with these financial sponsors to execute the buyout, as they typically lack the capital to finance such transactions independently.

The transition from public to private involves purchasing all outstanding shares from public shareholders, typically at a premium over the current market price. Once private, the company no longer has to meet the extensive regulatory and disclosure requirements imposed on public entities, freeing it to operate with fewer constraints.

Key takeaways

• Going private can reduce regulatory and public scrutiny, allowing companies to focus on long-term strategy.
• Private ownership allows for bolder strategic and operational decision-making without the pressures of quarterly performance reporting.
• Private equity-backed management buyouts are common sources of funding for take-privates.
• While investor and business risks include reduced liquidity and high leverage, companies benefit from streamlined governance and more strategic freedom.

Why would a public company go private?

There are several factors behind the decision to take a company private:

Reducing regulatory scrutiny

Public companies must adhere to rigorous reporting requirements, including quarterly earnings reports and compliance with rules imposed by national securities regulators. These obligations can be resource-intensive. Going private eliminates these pressures, enabling management to focus on long-term strategies without external interference.

Discover more at: Private vs Public Equity: Key Differences

Enhancing strategic and operational flexibility

Private companies enjoy greater autonomy in their decision-making. Without public shareholders or analysts scrutinising their every move, management can invest in transformative initiatives that might not deliver immediate returns. This freedom can be critical for companies undergoing restructuring or seeking to enter new markets. Conversely, public companies may prioritise short-term gains to satisfy market expectations, sometimes at the expense of sustainable growth. Private ownership removes the obligation to report quarterly earnings, allowing businesses to pursue innovative or capital-intensive projects without risking shareholder backlash.

Discover more at: Why PE take-privates are taking off

Optimising capital structures

Take-privates allow companies to optimise their capital structure by enabling higher leverage than would typically be acceptable in public markets. Private equity owners inject their own equity capital alongside debt financing to fund growth initiatives and improve operational efficiency. Increased leverage imposes financial discipline among management, driving sharper decision-making and resource allocation. Freed from public shareholder constraints, businesses can take on more debt maximise returns and drive long-term value creation.

Real-world examples

Several high-profile companies have gone private in recent years. For example, in a landmark deal in 2023, Japan Industrial Partners led a consortium to acquire electronics giant Toshiba, which traded on the Tokyo Stock Exchange, for approximately $13.6 billion.¹  Meanwhile, in one of the largest PE deals of 2024, Silver Lake Capital acquired New York Stock Exchange-listed global sports and entertainment company Endeavor for an enterprise value of $25 billion.² These P2Ps aim to revitalise these businesses by enabling more agile decision-making away from public market pressures.

How does a take-private transaction work?

Taking a public company private involves a multi-step process that includes: 

Identifying a target

Potential buyers identify target companies that would benefit from private ownership. These buyers typically look for undervalued businesses with strong growth potential or those struggling under public market pressures.

Shareholder approval

Once buyers make an offer, the transaction requires approval from the company’s board of directors and, ultimately, its shareholders. Shareholders vote on whether to accept the buyout offer, which usually includes a premium to the current share price as an incentive.

Financing the buyout

The buyout is usually financed through a combination of equity from investors and debt, in the same way as a typical leveraged buyout (LBO). Management teams typically collaborate with private equity firms to execute a management buyout (MBO), where they retain a stake in the privatised company.

Deal structures

Take-private deals generally follow one of two structures: a one-step merger or a two-step tender offer.

In a one-step merger, the acquirer and target negotiate a merger agreement, which is then submitted to the target's shareholders for approval. A majority vote is typically required to proceed. Once approved, the company merges with a subsidiary of the acquirer, and its shares are delisted from public exchanges. This method is straightforward but can be time-consuming due to the need for shareholder meetings and regulatory approvals.

A two-step tender offer, meanwhile, begins with the acquirer making a public tender offer to purchase a majority of the target company's shares directly from shareholders at a specified price. If a sufficient number of shares are tendered, the acquirer proceeds to a "back-end" merger to acquire the remaining shares, finalising the deal. This method can expedite the process, as it may bypass the need for shareholder meetings.

What happens when a public company goes private?

Impact on business operations and strategy

Privatisation often marks a shift in strategy. Once the shares have been delisted, companies gain the flexibility to invest in long-term projects and strategy pivots, undertake restructuring or focus on niche markets without worrying about market perception. 

Governance changes

Governance is also typically simplified as private companies generally operate with a smaller, more focused board of directors. Without the need to answer to public shareholders or meet the stringent requirements of regulatory bodies, governance also becomes more agile. Decision-making processes tend to streamline, enabling faster and more decisive action.

What happens to shareholder shares when a company goes private?

Compensation for shareholders

When a company goes private, shareholders are typically compensated through a buyout offer. This offer is often a premium over the stock’s recent market price, providing an incentive for shareholders to approve the deal.

Scenarios for minority shareholders

Minority shareholders may face varying outcomes. In most cases, they are required to sell their shares during the buyout. This is because corporate laws usually determine that such deals can proceed with approval from a majority of shareholders, effectively obligating minority shareholders to participate under the agreed terms in what is known as a “squeeze out”. However, in some jurisdictions, dissenting shareholders might retain their stakes or seek legal recourse if they believe the buyout undervalues the company. For example, under the Shareholders' Rights Directive, EU countries provide avenues for dissenting shareholders to challenge buyouts or seek judicial review.

Risks and benefits of going private

Risks

• High leverage: Leveraged buyouts can strain a company's finances, making it vulnerable to market downturns.
• Reduced liquidity: While private companies can raise equity capital through private investors or equity offerings, they lack the flexibility of public companies to issue shares on stock exchanges to raise funds due to the absence of a public market. 
• Market uncertainties: The success of a take-private transaction depends on factors like economic conditions and industry growth trends.

Benefits

• Focused growth: Private ownership allows companies to align their strategies with long-term goals without external distractions.
• Less regulatory compliance: Avoiding public reporting obligations saves time and resources.
• Better control: Private companies can concentrate ownership among a small group, enabling more cohesive and ambitious decision-making.

Take-private transactions offer businesses the opportunity to escape the pressures of public markets and focus on strategic growth. While the process involves financial risks and often significant operational changes, the potential rewards, including greater autonomy and flexibility, make it an attractive option for companies seeking transformative change. P2Ps are common in private equity, which continues to find success in identifying undervalued businesses in public markets and overhauling them under private ownership.

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