What is “going private”?
Going private describes any transaction (or sequence of transactions) that converts a company whose shares trade on a public exchange into a privately held company. After the deal closes, the company’s shares are no longer listed or freely traded on public markets, and public shareholders either receive cash or other consideration for their holdings or become minority private owners.
Key takeaways
– Going private removes a company from public markets and public reporting obligations.
– Common structures: leveraged buyouts (private equity buyouts), management buyouts (MBOs), and tender offers (including hostile offers).
– These transactions commonly use significant debt, secured by the target’s assets and paid from its cash flows.
– Going-private deals require careful valuation, regulatory filings, board/shareholder approvals and often fairness opinions.
– Example: JAB Holding’s all-cash acquisition of Keurig Green Mountain (announced Dec 2015, completed Mar 2016) offered $92/share, a ~80% premium over pre-announcement prices and resulted in Keurig’s delisting and privatization.[Source: Investopedia; Keurig press release]
Why companies go private
– Reduce scrutiny and the costs of public reporting and compliance.
– Give management and new owners flexibility to restructure or invest for the long term without quarterly market pressure.
– Facilitate strategic or operational changes that may take time to produce results.
– Enable a concentrated owner (private equity or management) to capture greater upside after operational improvements.
– Owners may believe public valuation is materially below intrinsic value, so buying out public shareholders is economically attractive.
Common transaction types and mechanics
– Private equity buyout / Leveraged Buyout (LBO)
– A PE firm acquires a controlling stake, typically using large amounts of debt secured by the target’s assets.
– Debt service (interest and principal) is paid from the company’s cashflow. The PE firm aims to improve operations, pay down debt, and exit later (sale or IPO).
– Management buyout (MBO)
– The company’s management team acquires the company (often with outside financing). Structure is similar to LBOs, but buyers are insiders.
– Tender offer
– A party publicly offers to buy shares from current shareholders at a specified price. If successful, the bidder acquires control and can take the company private.
– Tender offers can be friendly or hostile (if management opposes them). They may be paid in cash, stock of the bidder, or a mix.
– Seller financing and earnouts
– Sellers (current shareholders) may finance part of the purchase price (deferred payments, notes, or earnout arrangements) to help complete the deal.
Major financial and legal considerations
– Financing structure: securing debt, covenant design, amortization schedules, refinancing risk.
– Valuation: buyers must justify the buyout price; sellers and minority shareholders must consider whether the price is fair. Fairness opinions are common.
– Regulatory filings and approvals: transactions often trigger required SEC disclosures and filings, stock exchange delisting procedures, and, in some cases, antitrust review.
– Minority shareholder protections: appraisal rights and fiduciary duties (varies by jurisdiction).
– Tax consequences: impact for sellers, buyers and the company—structure should consider tax efficiency.
– Post-close governance: new board composition, management incentives, debt covenants and reporting to lenders.
Regulatory and disclosure steps (high level)
– Public disclosures: detailed transaction documents (proxy statements, Schedule 13E-3 for going-private transactions in the U.S. when required by SEC rules, Schedule TO for tender offers, proxy materials under Schedule 14A, and Form 8-Ks for material events).
– Exchange delisting and deregistration: procedures to remove securities from an exchange and terminate registration under the Securities Exchange Act.
– Shareholder approval: a vote of shareholders is often required for mergers; tender offers require shareholders to tender shares.
– State corporate law issues: mergers and freeze-out mergers often require compliance with state statutes (e.g., appraisal rights under Delaware law).
Because requirements differ by transaction type, company size and jurisdiction, companies should engage experienced securities and corporate counsel early.
Practical steps — a condensed checklist for companies considering going private
1. Clarify objectives and alternatives
– Why go private? Strategic turnaround, buyout opportunity, undervaluation, or other reasons.
– Consider alternatives (strategic sale, recapitalization, stay public with operational changes).
2. Form a cross-functional team and hire advisors
– Engage legal counsel (corporate and securities), investment bankers, accounting/tax advisors, and financing sources.
– Prepare a confidentiality/data room for potential buyers.
3. Perform valuation and preliminary financing analysis
– Independent valuation, stress tests for debt service, sensitivity analysis under different operating scenarios.
– Identify potential lenders and equity sponsors (PE firms, sponsors, management backers).
4. Structure the deal
– Decide on an approach: negotiated buyout, tender offer, merger, or MBO.
– Work on purchase agreement terms, financing commitments (debt/Equity), covenants and collateral.
5. Address governance and conflicts
– Form special committee (independent directors) if insiders are buyers (MBO) to address conflicts and to review fairness.
– Obtain fairness opinion as appropriate.
6. Prepare required disclosures and obtain approvals
– Draft and file necessary SEC and exchange filings, proxy statements, or tender offer materials.
– Seek shareholder votes or successful tender results. Manage communications and regulatory requirements.
7. Close financing and transaction
– Draw down loans, satisfy closing conditions, and complete funds transfers.
– File delisting/deregistration forms and complete post-close corporate filings.
8. Post-close integration and compliance
– Implement new governance, reporting to lenders, and any operational changes planned. Address tax, employee compensation, and contract novations.
Practical steps — for bidders/acquirers
1. Do rigorous due diligence (financial, legal, tax, operational).
2. Line up financing commitments and fallback financing or equity partners.
3. Decide on offer type and structure (cash tender, stock swap, merger).
4. Prepare regulatory plan (SEC filings, antitrust reviews if relevant).
5. Negotiate transaction documents and protections (representations, indemnities).
6. Execute closing and integrate operations.
Practical steps — for public shareholders evaluating an offer
1. Review offer carefully: price, form of consideration (cash vs. stock), conditions and timelines.
2. Read the bidder’s disclosure documents and any recommendation from the target’s board.
3. Consider getting independent advice or evaluating fairness opinions.
4. Understand your rights (tender mechanics, vote requirements, appraisal rights where applicable).
5. Make a timely decision before the tender deadline or vote.
Timeline and typical duration
– Friendly negotiated buyouts: often several months to a year (valuation, financing, approvals).
– Tender offers: can be faster (weeks to months), though contested takeovers or antitrust reviews extend the timeline.
– MBOs: timelines vary depending on financing complexity and board procedures.
Pros and cons
– Pros for owners/buyers: more operational flexibility, lower public reporting costs, potential for higher returns after restructuring.
– Cons for target company: higher leverage and bankruptcy risk from LBO debt, reduced liquidity for former public shareholders, potential governance opacity.
– Pros for shareholders: immediate liquidity and a premium (often) to market price.
– Cons for shareholders: if the offer undervalues the company, shareholders lose potential upside.
Risks and mitigation
– Over-leveraging: stress-test cashflows; set conservative covenants.
– Conflicts of interest (insider buyouts): use independent special committees and fairness opinions.
– Regulatory or antitrust hurdles: early assessment and pre-filing consultations.
– Shareholder litigation: ensure robust disclosure and fiduciary process to reduce litigation risk.
Real-world example
– Keurig Green Mountain: In December 2015 JAB Holding Company announced an all-cash offer to acquire Keurig at $92 per share—about an 80% premium over pre-announcement trading prices. Shares jumped and the transaction closed in March 2016; Keurig ceased public trading and became private.[Source: Investopedia; JAB/Keurig announcement]
When to get help
– Going-private transactions are legally and financially complex. Engage experienced investment bankers, tax advisors, and securities and corporate attorneys early to structure, finance, negotiate, and comply with disclosure and regulatory requirements.
Sources
– Investopedia, “Going Private” (source page provided): https://www.investopedia.com/terms/g/going-private.asp
– Keurig Green Mountain press release, “JAB Holding Company-Led Investor Group Completes Acquisition of Keurig Green Mountain, Inc.” (announcements around Dec 2015–Mar 2016)
If you’d like, I can:
– Draft a sample step-by-step timeline tailored to a specific company size and industry.
– Outline the typical SEC filings and the timing for each one for a U.S.-listed company.
– Create a due-diligence checklist for a potential buyer or a special committee. Which would help you most?