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Jeffery Perry shares his views on Elon Musk’s recent acquisition of Twitter to explore the pros and cons of making a company private.

The holy grail in business is participating in a bell-ringing ceremony at the New York Stock Exchange (NYSE) or Nasdaq, illustrating the power and prestige of being a publicly-traded company. However, quarterly earnings reports, Securities and Exchange Commission (SEC) regulations and required disclosures, and the abundance of private capital have many public companies considering going private. So what are the considerations? Look no further than two companies led by Elon Musk as examples—Tesla and Twitter, one remained public and one went private. 

Being a public company has traditionally been the ultimate recognition of growth and opportunity in business. In 2021, there were 1035 initial public offerings (IPOs), an all-time record, including significant growth in special purpose acquisition companies (SPACs) as another vehicle for going public. However, taking a step back over a broader timeframe, according to Forbes, the number of public companies dropped 52% from the late 1990s to 2016. In 2022, there have been only 172 IPOs and successful SPACs have virtually disappeared. At the same time, the strength of private equity continues to grow to fuel businesses. In some sectors like biotech and technology, private equity has recently outstripped investments of public markets without many of the drawbacks of regulations and disclosures.

Given this overall environment, many public companies across sectors are thinking about whether to remain public or consider going private. Private companies worry less about quarterly earnings reports, have fewer stakeholders to manage, and have fewer disclosures.

So is it an easy decision for a public company to go private? Not so fast. When Tesla went public in 2010, it experienced significant growth and recognition of disrupting the automotive industry. Elon Musk caused a stir in 2018 when he announced his plan to take Tesla private via Twitter. He stated that a public Tesla was exposed to the ups and downs of the stock market, the short-term focus of quarterly earnings expectations, and misaligned incentives of “short-sellers” betting against the company. 

However, Elon Musk ultimately decided that Tesla should remain public. His initial tweet and later retraction resulted in civil lawsuits and SEC settlements. Putting the controversy aside, Elon Musk’s stated rationale highlights considerations regarding the decision to remain public:

Key points include:

• Investor and board influence
• Strategic priorities
• Financial sustainability

Read the full article, Public Company Considering Private: Tesla or Twitter?, on LeadMandates.com.