Mergers & Acquisitions Advisory

Sell Side Transactions
Buy Side Transactions
Leveraged and Management Buyouts
Going Public Transactions
Going Private (Public to Private) Transactions
Recapitalizations

Going Private (Public to Private) Transactions
Today, public companies are faced with significant risks and responsibilities. Low stock prices and deflated market capitalization not only scare away investors, but potential business partners and customers as well. Frequent and costly SEC filings and scrutiny, audits, new Sarbanes-Oxley regulations and related legal expenses (not to mention director compensation, D&O liability insurance and additional personnel costs) are also making a huge impact on profitability and cash flow.

Aside from these obvious increased costs associated with being publicly traded, public companies are also often pressured to focus on quarterly financial results, as opposed to longer term growth strategies and goals. A major consequence of being a public company is the reduced flexibility of the board, management and major shareholders to be able to quickly respond to changing market conditions and competition. When a company is private, and relatively closely held, many aspects of this corporate governance is conducted less formally than in a public company.

In order to seek relief from the adverse aspects of being publicly traded, many companies today are going private or deregistering their stock. Generally speaking, SEC rules and regulations permit a publicly traded company to “deregister” a class of its equity securities, when either:

• The number of record holders of the registered class of securities is less than 300; or
• The number of record holders of the registered class of securities is less than 500 and the company’s total assets have not exceeded $10 million on the last day of each of the company’s three most recent fiscal years.

Going private transactions can take place in any of a number of ways. Typically, the company declares a reverse stock split that not only reduces the number of shares, but also reduces the number of shareholders. In addition, another company or individual may make a tender offer to buy all or most of the company’s publicly held shares or the company may merge with, or sell its assets to another company.

Despite the benefits of going private, there are a number of hurdles associated with going private of which companies should be aware. Aside from the expected decrease in employee morale, companies that have gone private will no longer have access to funds that are available through the public capital markets. Another hurdle confronting any going private transaction is whether the proposed transaction will survive scrutiny under state law standards that govern these transactions. The largest risk, however, is the potential exposure to shareholder litigation from those that oppose the going private transaction.

How Atlantic American Can Help
Atlantic American assists our clients in making difficult business decisions, such as those required by companies contemplating the path of going private. Our experience with and knowledge of corporate structure enables us to provide guidance in the often difficult path to going private, including dealing with shareholder opposition, accessing financing in a timely manner and understanding state laws that affect deregistered businesses. Atlantic American has been engaged on several going private transactions, working with each firm’s attorneys and accountants to ultimately examine and explore the correct path for the company.