Why private companies stay private: the FEI research foundation asked senior financial executives of five privately held companies to tell why they stay private. Here's what they said. (Private Companies)

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Author: William M. Sinnett
Date: Oct. 2002
From: Financial Executive(Vol. 18, Issue 7)
Publisher: Financial Executives International
Document Type: Article
Length: 1,936 words

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Picture this: It's 9:29 a.m. ET, and you're in New York City, standing on the small stage at the front of the New York Stock Exchange's main trading room--next to Chairman Richard Grasso himself. With the ceremonial gavel in hand, you're poised to "ring" the 9:30 a.m. opening bell on this, the day your company goes public--with its shares trading on the prestigious NYSE. A CFO's dream? Yes--and no.

For, among the benefits of being a public company--the ability to raise new capital to expand, explore, pay of f debt, acquire other companies and more--many companies make the conscious decision not to go public.

This begs the question: Why do private companies choose to stay private? The FEI Research Foundation asked senior financial executives at five privately held companies to talk about their firms, and explain why they stay private. The companies interviewed represent a range of industries and sizes, and among the common themes for remaining private, each clearly leads to the issue of "control."

Maintain Control

"We stay private to maintain control," says Richard T. (Dick) Forsythe, vice president of finance, secretary and treasurer of Eggers Industries Inc. Two Rivers, Wis.-based Eggers Industries is a manufacturer of architectural wood doors and plywood.

"We have made a conscious decision to stay private, and it is even in our mission statement, says Forsythe. In fact, he adds, "We never even discuss the issue of going public."

Eggers' craftsmen have been working with wood for over 100 years. The company is organized as a Subchapter S corporation, which limits its number of shareholders to 75, and taxes them in a manner similar to a partnership. (Taxable income flows to the shareholders, who are then taxed at their individual tax rates.)

Forsythe lists, as the benefits of working for a private company, certain things he "does not have to do:"

* Chase quarterly earnings to appease investors and Wall Street analysts.

* Spend a lot of time and money doing road shows to raise capital.

* Worry about insider trading scandals, which are so popular today with the media.

Like most other privately held companies he knows of, Forsythe says that Eggers is run for the long term, and not to manage short-term earnings. He sees this as a challenge for some public companies. "There is a lot of pressure for public companies to increase quarterly earnings. Some executives bow to this pressure to produce short-term results to keep the stock price up."

This is not the case at Eggers. Forsythe says, "We focus on growing the business, not on growing the stock price."

One issue that Eggers does have to deal with as a Subchapter S corporation is the lack of liquidity of its shares. This issue affects shareholders who might look for a quick turnaround of their investment. Forsythe explains that the share price used when shareholders sell and buy shares is based on an independent valuation...

Source Citation

Source Citation
Sinnett, William M. "Why private companies stay private: the FEI research foundation asked senior financial executives of five privately held companies to tell why they stay private. Here's what they said. (Private Companies)." Financial Executive, vol. 18, no. 7, Oct. 2002, p. 51+. Accessed 1 Oct. 2020.
  

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