The Morgan and Banks theory: Seven good reasons to go from public to private

Things are not going well for public listed recruitment company, Talent2. And, like every listed company, its travails are on display in the form of its regular updates to the Australian Securities Exchange. In the six months to December 31, 2011, the company reported a net loss of $1.6 million, a fall of 147%.

“Our performance hasn’t been great,” Talent2 CEO, John Rawlinson tells LeadingCompany today. “For that reason our share price is low.”

Solution? Take the company private again. Talent2’s biggest shareholders, chair Andrew Banks and director Geoff Morgan, together with a large privately held American company, Allegis, today proposed buying out the remaining shareholders and remove the company from the ASX to “allow the company more flexibility to meet its strategic growth plans”.

This is public relations-speak for “time for a big overhaul that could take years to deliver results and which shareholders will almost certainly get impatient about”.

Companies list on stock exchanges for several reasons: to build their brand and gain credibility, to raise capital for growth, and to allow the founding shareholders (and subsequent ones) to sell, and recoup their investment of time and money.

However, there is nothing stopping a public company changing its mind and going private again, provided it can get the agreement of shareholders.

That is easier when the share price is low, and Talent2 has watched its share-price fall from a high of $1.53 to a low of 32 cents in the past year, and it currently about 48 cents. The price offered in the buy-back is 78 cents a share.

Talent2 has big growth aspirations: “to be the best end-to-end talent management organisation in the world by 2015 and expand its global footprint in Human Resources Outsourcing (HRO) for the benefit of clients and stakeholders. Talent2 is Asia Pacific’s number one Multi-Process HRO provider.”

If its plans are not dependent on large amount of public capital – private equity, debt or strategic partners could fill the gap – there is no real reason to remain listed, Doug Dow, Associate professor of business strategy at Melbourne Business School tells LeadingCompany.

Rawlinson expects that the new owners, between them, will stump up any cash that is needed.
In fact, more can be achieved by being private.

Here are seven benefits of going private:

1. Regain control

An undervalued company can easily be taken over by a rival, or shareholders put a lot of pressure on the company’s board and management to change its strategy, reducing the control of the board and management to execute the decisions they think are in the company’s best interest.
“If the board disagrees with the way the market values their company, and the market does not appreciate the long-term implications of their strategy, the company might go private again,” Dow says.

2. Save money

Running a private company is cheaper than running a public one, Dow points out. “As the reporting requirements get more onerous, add cost but not adding value, companies might choose to go private again,” he says.
Companies can reduce administrative staff once the reporting requirements are reduced. Rawlinson says it costs at least a million dollars a year to meet listing requirements and believes some money will be saved.

3. Align with a strategic partner

Talent2 will be part owned under this deal by an enormous American recruiter, Allegis, which is privately owned and is already a strategic partner. Now the ownership of the two companies will be in alignment.

However, Rawlinson says the two companies are already culturally aligned; it is more a matter that “when you have challenging economic times, you can manage that better as a private company with financial strong shareholders.”