Corporate boards are increasingly preoccupied with the issue of whether to take their companies private. The resulting debate has acquired political and social overtones. Simply put, the question for the shareholders is: would you prefer to sell your shares for cash now at a premium to the market price, or hold on to your shares in the hope that you will do better in the long run?
This question can disguise the underlying complexity of the issues, to the cost of the current shareholders. Boards must ask whether there is a third way that provides shareholders with the benefits both of the private equity model and public ownership.
Private equity firms without exception aim to generate returns higher than those demanded by the public markets. Many achieve their objective by employing well-tested techniques. For example, a more efficient capital structure (typically more debt); highly disciplined management (cost-cutting); strategic focus on core competencies (selling underperforming assets); and aligning management and owner incentives (pay based on performance, often in the form of options).
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