Go Private
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Go Private
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A going private transaction is one in which a public company is converted into private ownership. Common examples include private equity buyouts, management buyouts, and tender offers. Many going private transactions involve significant amounts of debt. The assets and cashflows of the acquired company are used to pay for those debts.
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our
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SEC Schedule 13E-3 is a form that publicly-traded companies must file with the Securities and Exchange Commission (SEC) when going private.
Mergers and acquisitions (M&A) refers to the consolidation of companies or assets through various types of financial transactions.
A takeover bid is a corporate action in which an acquiring company presents an offer to a target company in attempt to assume control of it.
A tender offer is an offer to purchase some or all of shareholders' shares in a corporation.
Privatization describes the process by which a piece of property or business goes from being owned by the government to being privately owned.
Private equity is an alternative investment class that invests in or acquires private companies that are not listed on a public stock exchange.
Why Do Public Companies Go Private?
How Does Privatization Affect a Company's Shareholders?
10 Famous Public Companies That Went Private
What Happens if I Reject the Tender Offer of a Newly Private Company?
Reverse Mergers: Advantages and Disadvantages
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The term going private refers to a transaction or series of transactions that convert a publicly traded company into a private entity. Once a company goes private, its shareholders are no longer able to trade their shares in the open market.
There are several types of going private transactions, including private equity buyouts, management buyouts, and tender offers.
A company typically goes private when its shareholders decide that there are no longer significant benefits to being a public company.
One way for this transition to occur is for the company to be acquired through a private equity buyout. In this transaction, a private equity firm will buy a controlling share in the company, often leveraging significant amounts of debt. In doing so, the private equity firm secures these debts against the assets of the company being acquired. The interest and principal payments on the debt are then paid for using the cashflows from the business.
Another common method is the management buyout transaction, in which the company is taken private by its own management team. The structure of a management buyout is similar to that of a private equity buyout, in that both rely on large amounts of debt. However, unlike a private equity buyout, a management buyout is undertaken by “insiders” who are already intimately familiar with the business.
In some cases, going private transactions will also involve seller financing, in which the owners of the company (in this case, the shareholders of the publicly traded corporation) help the new buyers finance the purchase. In practice, this generally consists of allowing the buyer to delay payment of a portion of the purchase price for some period of time, such as five years.
Many going private transactions involve significant amounts of debt. In these situations, the assets of the acquired company are used as collateral for the loans, and its cashflows are used to pay for debt servicing.
Another common example of going private transactions is a tender offer . This occurs when a company or individual makes a public offer to buy most or all of a company’s shares. At times, tender offers are made (and accepted) even when the current management team of the target company does not want the company to be sold. In this situation, the tender offer is referred to as a hostile takeover .
Because the entity putting forward the tender offer can be a public corporation, tender offers are often financed using a mixture of cash and shares. For example, Company A might make a tender offer to Company B in which the shareholders of Company B would receive 80% of the offer in cash and 20% in shares of Company A.
In December 2015, the private-equity group JAB Holding Company announced its plans to acquire Keurig Green Mountain. Unlike many private-equity buyouts, this was an all-cash offer . 1
The offer priced the shares at $92, a nearly 80% premium over their market value prior to the announcement. 1 Unsurprisingly, share prices rose dramatically following the announcement and the company accepted the offer shortly thereafter.
The transaction was completed in March of the following year. Accordingly, the company’s shares ceased trading on the stock market and Keurig Green Mountain became a private company.
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A publicly held company generally means a company that has a class of securities that is registered with the SEC because those securities are widely held or traded on a national securities exchange. When a public company is eligible to deregister a class of its equity securities, either because those securities are no longer widely held or because they are delisted from an exchange, this is known as “going private.”
A publicly held company may deregister its equity securities when they are held by less than 300 shareholders of record or less than 500 shareholders of record, where the company does not have significant assets. Depending on the facts and circumstances, the company may no longer be required to file periodic reports with the SEC once the number of shareholders of record drops below the above thresholds.
A number of kinds of transactions can result in a company going private, including:
If an affiliate of the company or the company itself is engaged in one of these kinds of transactions or series of transactions that will cause a class of equity securities to become eligible for deregistration or delisting, Rule 13e-3 (link is external) of the Securities Exchange Act of 1934 and Schedule 13E-3 (link is external) may apply. When Rule 13e-3 applies, the company is said to be “going private” under SEC rules.
While SEC rules don't prevent companies from going private, they do require companies to provide specific information to shareholders about the transaction that caused the company to go private. In addition to a Schedule 13E-3, the company and/or the affiliates engaged in the transaction also may have to file a proxy or a tender offer statement with the SEC.
When one of the kinds of transactions listed above involving the company or its affiliates results in the company’s publicly held securities becoming delisted from a national securities exchange or an inter-dealer quotation system of any national securities association, Rule 13e-3 and Schedule 13E-3 may also apply.
Schedule 13E-3 requires a discussion of the purposes of the transaction, any alternatives that the company considered, and whether the transaction is fair to unaffiliated shareholders. The company also must disclose whether and why any of its directors disagreed with the transaction or abstained from voting on the transaction and whether a majority of directors who are not company employees approved the transaction.
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