Following BMC, which blazed the trail most recently, BlackBerry is also looking at going private. So now would be good time to talk about the good and the bad in regard to this decision and the likely impact on customers and employees. The move isn’t a panacea and big risks exist in the process, say, if a raider like Carl Icahn gets his hooks in the deal or if the company fails to get to a new critical mass to go public again.
Benefits of Going Private
Going private is almost like going back and living with your folks when your adult life takes a hard turn. It removes a lot of the distractions associated with being out on your own and allows you to focus on getting things done from a customer, business structure and employee standpoint. But much like moving back home with your parents, things won’t be the same. Going private won’t truly take you back to pre-public status. But it will be close.
It removes much of the regulatory requirements that a public company has. As an executive, you can be more candid with less fear of insider trading problems. You don’t have to wordsmith quarterly reports as tightly. And you won’t have your legal department breathing down your neck as often. In short, the biggest benefit as a CEO is that you can focus more on what is strategic and what is tactical. You can more easily delegate because that tactical problem is far less likely to land you in a PR nightmare than it would if you were a public company.
As an employee, you are back to having shares and options granted in a pre-public company and you should anticipate a strong financial reward once the firm goes public again or gets purchased. The move also tends to tighten up the employees somewhat. It takes their minds off watching the market and estimating how much their net worth is dropping, particularly in the decline that predicates a move like this. In short, you tend to get less turnover once the firm has gone private, and this leads to more stable, more closely knit teams.
Risks to Consider
The biggest risk is that you trade your investors, who currently have little voice in your operations, for a set of investors who actually think they get a vote (and they generally do). This can become a “too many cooks in the kitchen” problem, particularly if you aren’t on their timeline to go public again. Using the “coming home” example, it is like you went home but now are living with very different parents than you did as a kid, and they have a completely different parenting style.
As an employee, you were likely funding future investments in homes, cars or your retirement partially or completely with stock or options that were given to you as part of your compensation. As a public company, these shares, once vested, are relatively liquid. As a private company, while provisions may allow you to sell them, they’ll likely be fixed at a lower value. If you have a lot of stock, you’ll have heavy financial incentives to ride this thing through and your ability to move with your spouse, or where the grass is greener, will be more limited because on such a move to another company, you’ll likely have to divest at a sharp discount.
This also makes it harder for the firm to attract new employees, though I’d argue that since a public company appeals more to employees who aren’t particularly company loyal (they can jump ship more easily), this might actually be a good thing. This is because the employees brought on board to a private company are making the decision to stick with the firm and not bounce out at the next high offer. So the employees you don’t get might actually be the ones you don’t want anyway.
Finally, the process of going private can attract corporate raiders like Carl Icahn, who will attempt to convert corporate assets into personal profits. If they succeed, they can kill the firm, like TWA was killed, and the end result can be catastrophic.
Customers will generally find a private company is more focused on their needs than a public company, and the employees with whom they work and interface are more stable. The risk is on the flip side because employees who are nervous about the uncertainty surrounding going private can provide a higher degree of volatility and lower customer focus in the weeks leading up to the decision. Once the company goes private, it should perform better from a customer perspective than it did as a public firm, but you are likely to see degradation leading up to the change. If the company is performing well for you, anticipating that it will get better after the process is complete gives you a good reason to ride through what will likely be a somewhat aggravating process.
Wrapping Up: Choices
Because both going private and public are painful, expensive processes, you shouldn’t undertake them casually. However, if the firm needs a major fix, this move can make a complete company transition easier to accomplish. Riding out the change could be lucrative to employees and rewarding for customers. If you don’t have faith in the company’s ability to change, it may be time for you to choose greener pastures. BMC is obviously better and more focused now that it is private. I believe in Dell’s future, too, so I would ride through that move if it were up to me. With BlackBerry, I believe in the executive team, but they are just exploring options right now and may end up on a very different path.