how going private works
a company typically goes private when its shareholders decide that there are no longer significant benefits to being a public company one way for this transition to occur is for the company to be acquired through a private equity buyout in this transaction a private equity firm will buy a controlling share in the company often leveraging significant amounts of debt in doing so the private equity firm secures these debts against the assets of the company being acquired the interest and principal payments on the debt are then paid for using the cashflows from the business another common method is the management buyout transaction in which the company is taken private by its own management team the structure of a management buyout is similar to that of a private equity buyout in that both rely on large amounts of debt however unlike a private equity buyout a management buyout is undertaken by insiders who are already intimately familiar with the business in some cases going private transactions will also involve seller financing in which the owners of the company in this case the shareholders of the publicly traded corporation help the new buyers finance the purchase in practice this generally consists of allowing the buyer to delay payment of a portion of the purchase price for some period of time such as five years many going private transactions involve significant amounts of debt in these situations the assets of the acquired company are used as collateral for the loans and its cashflows are used to pay for debt servicing another common example of going private transactions is a tender offer this occurs when a company or individual makes a public offer to buy most or all of a company s shares at times tender offers are made and accepted even when the current management team of the target company does not want the company to be sold in this situation the tender offer is referred to as a hostile takeover because the entity putting forward the tender offer can be a public corporation tender offers are often financed using a mixture of cash and shares for example company a might make a tender offer to company b in which the shareholders of company b would receive 80 of the offer in cash and 20 in shares of company a real world example of a going private transactionin december 2015 the private equity group jab holding company announced its plans to acquire keurig green mountain unlike many private equity buyouts this was an all cash offer 1the offer priced the shares at 92 a nearly 80 premium over their market value prior to the announcement 1 unsurprisingly share prices rose dramatically following the announcement and the company accepted the offer shortly thereafter the transaction was completed in march of the following year accordingly the company s shares ceased trading on the stock market and keurig green mountain became a private company 