Going Private

Going Private — Definition

Going private is a process that converts a publicly traded company into a privately held entity. After the transaction, the company’s shares are no longer traded on public markets and ownership is concentrated among a smaller group of investors or insiders.

How It Works

Going private typically occurs when shareholders, management, or an outside buyer determines that the benefits of public status no longer outweigh the costs (regulatory, reporting, market pressure, etc.). Common steps include:

• A buyer (private equity firm, management team, or another company) offers to acquire the public shares.
• Financing is assembled—often a combination of debt, cash, and sometimes seller financing or equity.
• If a controlling stake is secured and regulatory/board approvals are obtained, the company is delisted and becomes private.

Assets and future cashflows of the acquired company are frequently used as collateral and to service the debt incurred to fund the purchase.

Common Transaction Types

• Private equity buyout: A private equity firm acquires a controlling stake, commonly using significant leverage (leveraged buyout). The firm aims to improve performance and eventually exit via sale or IPO.
• Management buyout (MBO): The company’s existing management purchases the business. Structure often resembles an LBO, but the buyers are insiders familiar with operations.
• Tender offer: A buyer publicly offers to purchase shares from existing shareholders at a specified price. If the buyer acquires enough shares, the company can be taken private. When the target’s management opposes the offer, it can constitute a hostile takeover.
• Seller financing: Owners may agree to defer part of the purchase price or provide financing to facilitate the sale.

Financing and Risks

• High leverage is common: loans are typically secured by the target’s assets and repaid from its cashflows.
• Higher debt increases financial risk; downturns can impair the company’s ability to service debt.
• Governance changes: ownership concentration can reduce public scrutiny but may also reduce transparency for external stakeholders.

Example: Keurig Green Mountain

In December 2015, JAB Holding Company announced an all-cash offer to acquire Keurig Green Mountain at $92 per share—about an 80% premium to the prior market price. Shares rose sharply after the announcement, and the transaction closed in March 2016, after which Keurig Green Mountain’s shares were delisted and the company became privately held.

Key Takeaways

• Going private removes a company from public markets and concentrates ownership.
• Typical routes include private equity buyouts, management buyouts, and tender offers.
• These transactions often rely on substantial debt, using the target’s assets and cashflows to secure and repay loans.
• While delisting can reduce public reporting burdens, it increases leverage-related risk and changes governance dynamics.