Public versus private: the cost/benefit of being a public company

Maarten van Buuren
WLP-Law, Amsterdam, the Netherlands
vanbuuren@wlp-law.com

Co-Chairs

Cameron Taylor
EY Law, Auckland, New Zealand; Asia Pacific Regional Forum Liaison Officer, Closely Held Companies Committee

Noreen Weiss
Gunnercooke, New York, US; Treasurer, Closely Held Companies Committee

Speakers

Juan Aguayo
Cuatrecasas, Madrid, Spain

Lee Barnum
Fried, Frank, Harris, Shriver & Jacobson, New York, US

Sam Jalaei
Magnusson, Copenhagen, Denmark

Seiichi Okazaki
MORI HAMADA & MATSUMOTO, Tokyo, Japan; Secretary, Closely Held Companies Committee

Alexandra Orbezo
Rebaza Alcazar & De Las Casas, Lima, Peru

At this interactive morning session, led jointly by co-chairs Cameron Taylor and Noreen Weiss, the costs and benefits of remaining a privately held company, as opposed to embarking on an initial public offering, were discussed. Remaining private or becoming public means there can be considerable benefits either way, yet there are also hidden downsides to having listed securities. These disadvantages are given scarce attention in these hectic times.

In short: public versus private, or as Cameron Taylor put it: ‘the good, the bad, and the ugly of becoming a public company’.

The speakers explored the preparations for a successful public listing and what pitfalls to avoid. They also discussed the characteristics of organisations that have successfully executed on their strategic objectives without going public.

Noreen Weiss began by stating that today, many companies opt to remain private for longer periods of time. Whether or not this is a good idea, was subject of debate between the speakers and attendees.

First and foremost, all speakers agreed that in order for a company (and its shareholders) to take the decision to go public, the company needs to be able to rely on the right team of advisors. Speaker Sam Jalaei added that it was important to make sure a company knows why it wants to be listed.

From a South American point of view, speaker Alexandra Orbezo added that for a private company consequences such as ‘loss of privacy’ and ‘loss of control’ are underestimated aspects of going public. In her experience, many companies make use of dual class structures (with enhanced voting rights), to try to reduce the loss of control.

‘We have almost fallen of a cliff in the US’, according to speaker Lee Barnum. The ‘performance of IPOs has been slightly mixed over the past year’. Many companies going public in the US accomplished this through means of a SPAC, which process is under duress. The main line of reasoning of the SEC in this respect: ‘is this really in the interest of the shareholders?’ In most cases, the original investors (not the founders) usually suffered losses, as many of these SPACs traded down quite rapidly after introduction. ‘Today, the SEC has its focus on investor safety’, according to Barnum.

Speaker Juan Aguayo further discussed the progress in Europe to date, where it seems that many banks are more interested in lending money instead of assisting private companies turn public. This leads to a quite silent IPO-market. Listing rules from the EU seem ‘not very ambitious’, according to Aguayo. As to the Nordic countries, speaker Sam Jalaei added that the IPO scene in the Nordics is ‘just beginning’, although Sweden is way ahead. The Nordics are on a learning curve. Too many companies were listed in a too short a period of time, and share prices have plunged. ‘Think before you commence’, seems the most valuable lesson. Jalaei stressed the importance of a proper due diligence; ‘clean up your house first’.

All parties agreed that, in general, and in most countries over 90 per cent of all owned companies are private companies. In these uncertain times, it is of particular importance that companies ask themselves: Why do I want to be listed? Speaker Selichi Okazaki added to this regarding the situation in Japan, stating that listing standards have changed. Companies should thoroughly consider the ‘remain private or go public’ question. For example, there is little added value in going public for a company which is already well known.

After the presentations, several questions from the attendees further amplified the discussion already taking place among the speakers. Everyone agreed that proper communication between the company and its stakeholders is very much essential. One attendee remarked: ‘It’s all about messaging/communication with your shareholders, investors, analysts, etc. If you want to go public, ask yourself the question every investor asks – “Why should I invest in you?” ’.

The speakers and the attendees talked further about such matters as regulation, disclosure obligations, dual class shares etc. All agreed that before going public, a company needs to tell its story to its investors, and get the right team on board. The advantages of going public of easier access to capital and enhancing the profile of the company are clear ones. Large disadvantages are the ‘loss of privacy’ and ‘loss of control’.

The co-chairs concluded the session by summarising that public versus private is not a question to be answered lightly. Going public remains a difficult route forward, especially today.