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Survey: Sarbanes-Oxley Act sending more firms back to the private sector
CNY Business Journal (1996+), Mar 12, 2004
Since the introduction of the Sarbanes-Oxley Act, the median size of announced going-private transactions has almost halved (from $81 million to $39 million), and the number of proposed buyouts involving the management team as the method chosen to go private has increased approximately 80 percent.
"Companies that are not being recognized in the public markets are seeking to go private through buyouts in greater numbers," says Ian Cookson, a director with Grant Thornton Corporate Finance LLC who examined data from Thomson Financial Corp. "Typically, it is the smaller public companies that may have found the burdens of being a public company not worth the benefits."
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In a recent release from Grant Thornton LLP, it noted that the number of U.S. public companies to announce privatization plans has continued to steadily rise since the passage of the Sarbanes-Oxley Act on July 30, 2002. Privatizationtransaction announcements increased 30 percent following the legislation's enactment from August 2002 to November 2003, in comparison to the 16-month period preceding the Act's initiation from April 2001 to July 2002.
According to Cookson, the typical successful going private transaction is:
* Relatively small, with revenues around $80 million and market cap of $40 million;
* Fairly inexpensive, with an offering price-per-earning ratio of 16, a premium of 33 percent over the prior weeks share price and an enterprise value 5.5x EBITDA;
* In the consumer, information technology, or industrials sector; and
* An acquisition by management in co-ordination with private capital.
"Of companies who announced their intention to go private, the top three industries were consumer discretionary, information technology, and industrials," Cookson says. "The top states were California, Florida, New York, and Texas, which is broadly reflective of the whole business environment regarding industry sector and geography."
Copyright Central New York Business Journal Mar 12, 2004
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