Question

Discuss the pros and cons of taking a company private. Is a private firm better positioned than a public company to make acquisitions?

Answer 1

Answer

In recent studies it is found that a private company is much more successful in comparison to that of the public companies. Going public may enhance the company's bottom-line but necessarily doesn’t means that the company will be financially strong or rich. There are various pros and cons of going privatization which is mentioned below:

Pros

• When a public company goes private then there are higher chances to issue IPO of shares in the market to get more financially strong.
• The liquid assets of the over the business after such acquisition will enhance the interest of the shareholders or potential investors of the company to make further investments.
• It improves the overall competitive business position in the market place by going private.
• Based on its objectives, it leverages the revenue and business earnings which further helps to build long term shareholders wealth in the business.

Cons

• In an adverse situation when the private company is running out of fund then the company face serious issues which quite unlikely to happen in case of the public companies.
• During such a period it will be quite hard for the management to raise capital for the purpose of further research and development.