Founders may consider taking their publicly listed company private, even if it is nearing bankruptcy, for several reasons:
Strategic Restructuring: When a company is on the brink of bankruptcy, it may need to undergo significant restructuring to salvage its operations. Being a private entity can provide the freedom to reorganize away from the public eye and the pressures of quarterly earnings reports, which demand short-term performance over long-term strategy.
Financial Advantages: Taking a company private can also be financially advantageous. It might allow the founders to renegotiate debt with creditors more effectively, as they may be more willing to restructure debt when there’s a clear, focused turnaround strategy that isn’t scrutinized by public investors.
Control and Decision-Making: Public companies are accountable to shareholders and must make decisions that favor shareholder returns, sometimes at the expense of other considerations. Privatization allows founders to regain full control and focus on the core values and long-term vision of the company without needing to seek approval from a board or shareholders.
Avoiding the Negative Effects of Public Markets: If a company is publicly struggling, its stock price may reflect that, leading to negative sentiment that can affect its brand, customer perception, and even operations. By going private, a company can work on its issues discreetly.
Preventing Hostile Takeovers: A troubled public company can be a target for hostile takeovers. If the founders feel that such an outcome would be detrimental, they may take the company private to maintain control and protect the company’s interests.
Market Conditions: Sometimes, market conditions make it so that the public valuation of a company does not accurately reflect its assets or potential. Founders may believe that the company has been undervalued by the public market and thus see an opportunity to take it private, restructure it, and possibly relist it in the future or sell it at a better valuation.
Alignment with Long-Term Goals: Founders often have a deep connection with their company and its mission. Taking a company private may align with long-term goals that do not resonate with public market priorities, such as investing in unproven technology or pursuing a business model that is not yet profitable but has potential.
Regulatory and Reporting Relief: Public companies are subject to strict regulations and must provide regular, detailed reporting to the public and regulators. Going private can reduce the burden of compliance and reporting, allowing the company to focus on its operational and financial recovery.
Each situation is unique, and the decision to take a company private would depend on a complex interplay of these and other factors. Founders must weigh the immediate financial costs and benefits, the potential for successful restructuring, the long-term vision for the company, and the interests of stakeholders, including shareholders, employees, creditors, and customers.