Question

why do some firms reverse their decision to become public companies elect to "go private".

discuss some of the advantages and disadvantages.

Answer 1

Advantages: -

1) Less regulation : The management can focus on core business as there are less SEC regulations.

2) Cost savings : Due to lesser regulation and reporting requirements the companies can save compliance costs.

3) Flexible investment timelines : The private companies have a time horizon of around 5 to 8 years so that they can focus on long term goals rather than quarterly results.

Disadvantages:-

1) Less Liquidity : As the shares of private company are not traded publicly they are less liquid.

2) No public issue: Private company cannot raise money through Initial public offer (IPO).

3) Leverage : For meeting funds requirement the company have to opt for debt which may lead to risk and fixed interest costs.