The term going private is used to describe a transaction involving a publicly traded company’s departure from listing shares on any exchange. Once a company terminates its public company status, its shareholders are no longer able to trade their shares in the open market. Converting the publicly traded company into a private entity is the opposite of going public.
Going Private Example
A company decides to go private when its shareholders decide that the benefits to being a public company no longer exist. This may be achieved by the company being acquired by a private equity firm. Usually, a PE firm buys a significant stake in the target company, using a large amount of debt. 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 using the cash flows from the business in addition to selected asset disposals.
Another common method is a management buyout or MBO. In this instance, the company is taken private by its own management team, often with the assistance with a private equity firm. This is similar to the leveraged buyout (LBO) structure in that the use of leverage and large amounts of debt is a significant factor. However, in this case, the existing management structure is retained and continue to operate the business with the oversight and restrictions placed on a public company.
A tender offer is another common method of taking a company private. This occurs when a company or individual makes a public offer to buy the target stock. When tender offers are made and the current management team of the target company does not want the company to be sold, the tender offer is referred to as a hostile takeover.
On February 3, 2020, Continental Building Products filed a 25-NSE – Notification filed by national security exchange to report the removal from listing and registration of matured, redeemed or retired securities with the SEC. This was followed by a 15-12B – Securities registration termination filing on February 13. These are the official filings signaling that the company has gone private.
