Model management: Floating, sinking, and delisting

Taking a company public is stressful. Businesses have to meet a new set of demands and show discipline dealing with constant scrutiny from shareholders, analysts and journalists. Public status means reporting results regularly - perhaps even every quarter - and explaining away sales and profits performance.

Deciding to take a public company private can be an even more difficult and no less stressful procedure - an acknowledgement of failure in the public eye. But an increasing number of listed companies are looking to go private because they feel they have been undervalued, especially over the last year, when the frenzy of the internet meant that traditional or 'real world' business stocks were not nearly as attractive as dot-coms.

After the recent turmoil in stock markets, companies going private might regain the rating they deserve and a much-needed cash boost. For dot-coms, the decline in valuations means that businesses that were once worth millions are seeing their stock diminish faster and faster. Some, such as internet bookseller Varsity Group, have been forced to retreat from the markets, and have delisted from Nasdaq. Its stock had an initial price of $10 per share, but since last September its stock has not traded for more than $1 a share, which is the minimum bid price for a Nasdaq-listed company.

So why would investors consider buying out a public company? Even though some companies have fallen out of favour with stock markets, there are still some, notably technology companies, reporting a steady flow of revenues and showing a healthy cash flow. Seagate Software, part of Seagate Technology, was taken over last year by venture capital company, Silver Lake Partners, for $2bn.

Technology companies, in a bid to move forward quickly, are also likely to shed parts of their business that would otherwise be slowing their overall growth. Companies looking to go private may hold other attractions for potential investors, such as low debt, and a product range which, while not number one in its market, is still selling well.

But what are the prospects for dot-coms, many of which cannot demonstrate a steady flow of revenues, a positive cash flow or a product for which there is demand?

Earlier this year, online property company Easier.co.uk, which had floated on AIM and raised £11m in February 2000, put itself up for sale after a disappointing performance, but it failed to find new funds to survive, or a buyer to take it private. With the doors closing on IPOs for an increasing number of dot-coms, going public might not even be an option they could consider in the first place. Instead of seeing its stock battered by the stock market, other dot-coms, such as computer and music retailer Jungle.com, chose to find a private buyer in the shape of GUS, but admittedly raised less money than it might have done in an IPO.

Is there any good news? Perhaps only this: companies that go from public ownership to private can still harbour ambitions to go public again when the stock markets improve.

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