Newly public companies going private again(wsj.com)
wsj.com
Newly public companies going private again
https://www.wsj.com/articles/going-private-again-is-all-the-rage-among-newly-public-companies-93fff45e
26 comments
https://archive.is/6wXqg
0% Interest Rate Phenomena. Much of the funds come from extra capital sloshing around the system, looking for returns. Once bought out, some companies incur more debt (easy because of 0% interest rates) much of which goes back to the new owners as special dividends. Finally, once stripped to the bones, the company goes public again.
I can't wait until this vulturous business model gets smacked in the face by tighter financial conditions.
I can't wait until this vulturous business model gets smacked in the face by tighter financial conditions.
Nice insight and agree with the sentiment. Get comfortable as I don't think we will see higher interests for a while.
The Fed target interest rate is 4.75% after being 0.25% since the beginning of 2020. The days of free money firehose are done for now.
Am I somehow thinking of the wrong rate here? Heck, my savings account gives 3.5%, like when I was growing up.
Am I somehow thinking of the wrong rate here? Heck, my savings account gives 3.5%, like when I was growing up.
No, you are right as my reply was ambiguous. Inflation is high which (i believe) would usually call for a higher Fed rate as they did in the 80's. As it stands, they are keeping rates relatively low. I just looked it up and Volcker pushed rates up to 20%(!) in 1981.
It is my belief that the strategy is for inflation remain higher in order to drop federal debt.
It is my belief that the strategy is for inflation remain higher in order to drop federal debt.
I'd say that's the strategy for about 530 of the elected representatives in Congress (and by extension, for just about everyone), whether or not we recognize or acknowledge it.
> Heck, my savings account gives 3.5%, like when I was growing up.
Which bank?
Which bank?
Amex
This seems like a good trend to me. Do an IPO to satisfy all the early investors, then go private so you can focus on long term growth and avoid most of the horror of being a public company.
Private equity isn't a new idea. "Leveraged buyout" is the old term for it. In the bad old days, the LBO company would issue tons of long-term debt, which the company would have to pay interest on. To be able to do that, they'd have to lay people off, close unprofitable businesses, and otherwise go on a starvation diet.
For these newer companies, the market cap probably isn't that high, so maybe the big bond issue doesn't happen.
>Grill maker Weber Inc. WEBR ... agreed to go private last year for $8.05 a share, well below its $14 IPO price less than 18 months earlier.
So, they collected a lot of money at $14, then collected more at $8, and in a few years when finances are better, they'll IPO again at $14. Nice business, except for the people who paid them $14 at the first IPO.
For these newer companies, the market cap probably isn't that high, so maybe the big bond issue doesn't happen.
>Grill maker Weber Inc. WEBR ... agreed to go private last year for $8.05 a share, well below its $14 IPO price less than 18 months earlier.
So, they collected a lot of money at $14, then collected more at $8, and in a few years when finances are better, they'll IPO again at $14. Nice business, except for the people who paid them $14 at the first IPO.
I'd be curious if Medium Term Notes have a role to play here, particularly considering the size. A lot of the term benefits of some bond issues, without a lot of the red tape of actually going through a bond issuance.
Is it their fault they found someone willing to pay $14/share?
Who said it was?
In a traditional IPO, the investors take the management on a road show, where they sell it to the buy-siders. They settle on a price that will clear most of the shares and not leave too much money on the table.
Buying an IPO has traditionally been a losing game. There have been brief periods where IPO shares go up enormously on the first day, and an ordinary investor can't even get any. They're like found money for the lucky few.
So the people who bought at $14 thought it was the latter case, but it was the former. Caveat emptor
In a traditional IPO, the investors take the management on a road show, where they sell it to the buy-siders. They settle on a price that will clear most of the shares and not leave too much money on the table.
Buying an IPO has traditionally been a losing game. There have been brief periods where IPO shares go up enormously on the first day, and an ordinary investor can't even get any. They're like found money for the lucky few.
So the people who bought at $14 thought it was the latter case, but it was the former. Caveat emptor
With what money? If they had that money they could buy out most investors in the private market
IPO at 1B, valuation drops to 200M after 1 year
Buy back shares at 1/5th of the price
Buy back shares at 1/5th of the price
Public markets are turning into de facto bag holders. Buy a pig high on exuberance, sell it back to the company low.
With what money? For this to work the way you want, the company would have to be trading at lower than the book value of its assets, in which case you might as well liquidate it. If you get the money from debt, now you have to focus on servicing the debt, which is probably worse than what the street wants (revenue growth).
I'm not so sure. How does the average public investor benefit? I can see them losing money on the drop from the IPO, then locked out of future profits when the company goes private. Too cynical?
they benefit because it IPO'd at $20 and then went down to $10 so they are happy to get out at a premium price of $15. Instead of losing 50% on their original investment they are only losing 25%.
They can reject the motion to go private, can they not?
In theory and depending on the shareholder makeup. In practice, the board makes the decision. Recall the controversy of Musk making fun of the Twitter board for not acting in the shareholder interests.
As I understand it, the board is responsible for putting the motion to the shareholders (Twitter shareholders still had the option to reject the Musk buyout). In practice, the board makes the decision because retail shareholders tend to not vote. But they could, if most of them were about to take on a big loss!
Yes, that's my thinking as well. iirc in that case, the board rejected the first buyout offer even though it was for more than the current share price.
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...because they don't like their recent (i.e., much lower) share prices.
They go private by buying shares at a lower price than the price of the shares they sold in the IPO.
If execs think the IPO price was fair, it's a good deal to go private.
They go private by buying shares at a lower price than the price of the shares they sold in the IPO.
If execs think the IPO price was fair, it's a good deal to go private.