Question

How does a public company purchase another company that isn't trading publicly?

Please respond with a 500 typed response with sources.

Answer 1

If a public company wants to purchase another company, which is not listed in the secondary market, it has the following few methods:

1. Private Placements: In this case the target private company may issue shares through private placement via investment bankers. If the public company purchases majority of the shares through private placements directly from the target private company. It gains control over the private company.
2. Direct Offer:
   • Here the public company sends a letter of intent to the management of the target private company. Stating their intention of purchasing the target private company.
   • Purchase Agreement: Once the letter of intent is accepted, the buyer commits a substantial resources to its business, legal, accounting and other due diligence investigation of the target company.
   • Valuations can be done by involving the investment bankers. Once both the companies agree on common terms of valuations and exchange considerations.
3. Auction Process: This is another way how a public company can purchase another company, which is not trading publicly. Here the seller can go for a private auction, where it can get maximum valuation for its company, by inviting all the interested parties to the auction. And the maximum bidder wins the deal to purchase the private company.
4. Closing: At this point, both the companies execute the sale-purchase transaction. With the terms and conditions and terms of exchange as agreed above. Here the buyer company gives the consideration either in form of cash or securities, as per the valuationss agreed by both the companies at the time of agreement. And the transfer of control is also done at this stage. All the necessary documentations, government formalities, legal compliance, issuance of press release is done at this stage.
5. After the closing: Post closing, here all security interests is perfected by filing or recording as per requirement by the department of Commerce or SEC. Also Monitoring is done, post acquisition to check for the proper integration.