Being Private: A Competitive Advantage?
“Being private is a point of competitive advantage,” declared Panera Chairman and CEO Ron Shaich on CNBC earlier this week.
The statement came on the heels of news Panera was being bought by JAB Holding Company – a privately held family firm that owns a diverse host of brands including Krispy Kreme and upscale Jimmy Choos –for $7.2 billion.
Going private isn’t unusual. Panera adds its name to a long list including Dell and Burger King, to name a few.
The allure of being private may be one reason for the decline in initial public offerings and the overall number of publicly traded firms, according to a recent Fortune article.
“More and more promising companies are opting to stay private longer. After all, why bother with the hassle of shareholders and financial disclosures, when there's enough VC funding to go around?”
Fortune’s research on the issue found that there has been a “precipitous decline in the number of companies that hold an initial public offering” and “a dramatic decline in the overall number of publicly listed companies in the U.S.”
Here are the findings:
- 65% decline in the number of U.S. IPOs from a 2014 high of 363. The flow of initial public offerings slowed considerably in 2016, hitting just 128—the lowest number since the financial crisis—with few signs of picking back up.
- 37% decline in the number of U.S.-listed companies since its 1997 high. With more companies opting for private fundraising over the hassle of public markets, the number of public companies has fallen to 5,734, about on par with the early ’80s.
The reporting requirements and the vulnerabilities that come with the public equity market, is driving some firms to go or stay private, explains Michael Useem, management professor and director of the Center for Leadership and Change Management at the Wharton School, University of Pennsylvania.
“A number of people at public firm say ‘why don’t we exit’, for good reason, but sometimes it’s a not so good reason like avoiding a takeover,” he points out.