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Private Capital Markets: Valuation, Capitalization, and Transfer of Private Business Interests + Website, 2nd Edition by Robert T. Slee

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CHAPTER 34

Going Public, Going Private

Less than .1% of all companies in the United States are publicly held. Yet “going public” is the dream of many private business owners. It is like the dream of the sandlot player convinced he will be in the major leagues against all odds. The process of taking a private company public involves offering securities, generally common or preferred stock, for sale to the general public. The first time such securities are offered is generally referred to as an initial public offering (IPO). Some private companies offer public securities to the market, called direct public offerings (DPOs), but they remain private firms after the offering. Other companies become public by merging with an existing public company. Called a reverse merger, this transaction enables a private company to go public more quickly and less expensively than through a traditional IPO.

There are several good reasons to go public. The most likely reason is to raise capital for operational expansion at a lower cost of capital than otherwise possible. Other factors include the ability to use stock as currency for acquisitions, to diversify and liquefy personal holdings, and to burnish a company's reputation. Yet there are equally good reasons why a company should remain private. These include the intrusion of public shareholders into the company's affairs, the demand for short-term financial results, the high costs involved, and the probability that the benefits of going public ...

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