Sweating Out the Public Markets

Remember that going-private boom that was supposed to explode because meeting Sarbanes-Oxley requirements was too expensive for small public companies? It hasn’t happened and, according to recent figures from Grant Thornton, the trend has been going in the opposite direction since enactment of the corporate anti-corruption law in 2002. The accounting firm reports that going-privates plunged to less than 50 in 2004 from nearly 100 the year before and for the first time since 2001 more firms went public than went private. Ian Cookson, Grant Thornton’s corporate finance director, attributes the drop to stronger equity markets. He says that in 2002 and 2003, companies going private drew multiples below what private equity buyers were paying in the private market and in 2004 “that situation reversed.” On balance, Cookson’s assessment makes a lot of sense. But I never bought the projections of a big rush to the exit doors of the public equity markets to begin with. Neither did many experienced members of the M&A bar who point out that going private is a tough proposition and requires meeting high standards to sell what is inherently a conflict-ridden deal. When the Delaware courts retroactively lowered the boom on the 1998 Emerging Communications deal last year, the stakes got even higher. My own belief has been that most companies finding Sarbanes-Oxley too onerous are going to put themselves on the block in a traditional sale. That’s been hard to prove because the M&A market was in a slump since the turn of the century until it began to rumble again in the last few months. It will be interesting to track which directions the small to mid-size companies take as dealmaking continues its comeback and creates more choices for their future. Martin Sikora Editor Copyright 2005 Thomson Media Inc. All Rights Reserved. http://www.thomsonmedia.com http://www.majournal.com