Business Going From Public To Private

 

Dell and Heinz have recently gone from public to private. What are the pros and cons of switching, and why this might be an ideal or not?

There are several advantages to companies going private.

When a company is public, it has to balance its responsibilities between its long-term vision and the expectations from its shareholders. This can create a gap between the company’s long-term strategy and the shareholders’ short-term interests. A private company, however, has a better opportunity to focus on its long-term goals, which may be more advantageous for its business overall.

Dell and Heinz’s reasons for going private are different. While Heinz, with its simple business model, is doing well and does not need a management makeover, Dell has dropped the ball in the highly competitive computer industry with regards to consumer tablets and cloud computing. To be able to focus on its long-term strategy, Dell may need to adjust its business model. This may be easier for private companies.

There are certainly risks involved with taking a company private. The management may over-estimate its ability to turn things around. Also, the founders, in trying to buy back the company, may lose control of the process if another party steps in and makes a higher bid.