Public stock prices are likely to fluctuate in the near future as continuing COVID-19 concerns, mounting inflation, supply shortages, threats of cyberattacks, and geopolitical turmoil continue to unsettle shareholders and disrupt long-term planning. In light of all this, it might not be a bad time to consider escaping the ups and downs by taking your company private.
Public companies benefit from easier access to capital, but there are several reasons why delisting may be a good choice for small- and mid-market public companies. “Going private” allows company management to focus on its long-term goals instead of chasing sort-tem profits to satisfy Wall Street’s demands. Because of this, delisting can help to stabilize a company’s value. In addition, going private can lower taxes, reduce compliance costs, and diminish regulatory and public scrutiny.
Unfortunately, going private can be a complicated process, and it’s important to take note of the financial reporting requirements involved before you decide to go private with your company.
Going private and the SEC
In addition to other requirements, companies that choose to go private—along with their controlling shareholders and other affiliates—are required to file detailed disclosures pursuant to Securities and Exchange Commission (SEC) Rule 13e-3.
Transactions are closely scrutinized by the SEC in order to ensure the fair treatment of unaffiliated shareholders. Companies must disclose the following in order to stay compliant with SEC Rule 13e-3 and Schedule 13E-3:
- The purposes of the transaction—this must include any alternatives considered and the reasons these alternatives were rejected
- Any reports, opinions, and appraisals that are “materially related” to the transaction
- Both the substantive (price) and procedural fairness of the transaction
Severe consequences may follow if a company fails to act with complete fairness and transparency. The aim of the SEC’s rules is to protect shareholders—and some states also have additional takeover statutes that provide dissenters’ rights to shareholders. This transition creates a limited trading market to allow shareholders to sell the stock.
We can help you take the proper precautions
Not all public companies will benefit from going private, and there are other possible methods for dealing with problems like corporate governance risk and high compliance costs. Even so, going private may be an excellent way to improve your company’s outlook, assuming your shareholders are supportive and the timing is right.
However, companies that choose to go private will need to be diligent to ensure they stay compliant with SEC rules and avoid lawsuits. If you’re trying to decide whether going private is right for you or you plan to delist your company’s stock, contact us today. We can help you make the right choice for your company—and ensure that your transaction is structured and reported in a way that ensures procedural fairness, transparency, and a fair price.