What does 'Going Private' mean

Going private is a transaction or a 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 stocks in the open market. Private equity firms will typically purchase a struggling company, make it into a private entity, reorganize its capital structure, and issue stocks once a profit can be realized.

BREAKING DOWN 'Going Private'

A company typically goes private when its stakeholders decide that there are no longer significant benefits to be garnered as a public company. Privatization will usually arise either when a company's management wants to buy out the public shareholders and take the company private (a management buyout), or when a company or individual makes a tender offer to buy most or all of the company's stock. Going private transactions generally involve a significant amount of debt.

Companies are often taken private when they need time to restructure their debt or operations prior to becoming a public corporation once again.

Different Options a Company Can Weight When Going Private

A company can go or be taken private in several ways. A management buyout or MBO, noted above, entails company management pooling its resources (often a mix of personal resources, private equity financing, and seller financing) to acquire all or specific part of their business. An MBO stands in contrast to a management buy-in (MBI), in which external management acquires a company and replaces the existing management team.

An MBO has both advantages and disadvantages. Advantages include existing managers’ strong understanding of the business they are taking over – less understanding, if a learning curve is involved. Disadvantages include managers negotiating a potentially challenging transition from being employees to owners, requiring a shift in mindset from managerial to entrepreneurial.

A leveraged buyout (or LBO) is another high profile and relatively common method that can be used to take a company private. In a LBO, acquirers (often a private equity firm) uses a significant amount of borrowed money or leverage to meet the cost of acquisition; thus, LBOs are often done on much larger entities than, say, a smaller startup that could be less expensive. The assets of the company being acquired and assets of the acquiring company are often used as collateral for the loans. LBOs help companies make large acquisitions without having to commit a lot of capital.

  1. Management Buyout - MBO

    A management buyout (MBO) is a transaction where a company’s ...
  2. Privatization

    Privatization is when a government transfers a property or business ...
  3. Private Purchase

    A private purchase refers to an investment in which an investor ...
  4. Private Company

    A private company is a company held under private ownership with ...
  5. Private Banking

    Private banking includes personalized financial and banking services ...
  6. Private Investment Fund

    A private investment fund is a fund that is not open to regular ...
Related Articles
  1. Managing Wealth

    How to invest in private companies

    It can be tough to analyze a company that doesn't trade publicly, but there are several advantages to investing in private companies.
  2. Small Business

    Why Companies Stay Private

    Many private companies prefer to stay private and find alternate sources of capital. Find out what firms have to gain by eschewing the windfall from a flashy IPO.
  3. Investing

    How to Invest in Private Equity

    Private equity might be a pricey investment, but the payoff could be big. Here's why and where you should invest in private equity.
  4. Financial Advisor

    Should My Portfolio Include Private Equity?

    Private equity offers a lot of potential, but is it worth the risk?
  5. Small Business

    Public Vs. Private Tech Valuations: What's Driving the Divide?

    The gross valuations over the past five years are more indicative of the market than the true value of the company itself.
  6. Managing Wealth

    Private Equity's Returns Are Tempered By Its Risks (BX, KKR)

    Private equity firms adopt approaches to quickly hike up earnings and boost returns, but these investments come with big risks too.
  7. Personal Finance

    Private banking versus wealth management

    Discover the various ways in which private banking and wealth management services coincide, as well as the significant differences between them.
  8. Investing

    Effects Of Interest Rate Hikes On Private Equity

    Private Equity firms would be wise to lock in current interest rates on their debt payments in anticipation of rate hikes.
  9. Insights

    Why Are Companies Taking Longer To Go Public?

    Learn why private companies are waiting longer to have their IPOs. Understand why it may be more advantageous for a company to stay private.
  1. How does privatization affect a company's shareholders?

    Shareholders of a public company can benefit if the company is taken private at a premium to where they own the shares. Read Answer >>
  2. How are leveraged buyouts financed?

    Understand the basics of a leveraged buyout, who is involved in executing the transaction and some of the various ways to ... Read Answer >>
  3. Investment Banking vs Private Equity

    Despite both shared similar characteristics, they are different in many ways. Check out how private equity and investment ... Read Answer >>
  4. What type of funding options are available to a private company?

    Understand how private companies can obtain financing for startup, growth or expansion projects, and learn how this differs ... Read Answer >>
Trading Center