deretailization: is “going private” here to stay? · ppt file · web...
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Deretailization: “Going Private” or “Staying Public”?
“Going Private” ConferenceBrooklyn Law School
Feb. 29, 2008
Prof. Alan PalmiterWake Forest School of Law
“Going private” phenomenon
[Thanks to Prof. Robert Bartlett, U Ga]
What is “going private”?
Public Private
Public
Private
DISCLOSURE
OWNERSHIP
Why go private?Attractions twofold: money and freedom.
Money • CEO pay can be “outrageously good”• CEOs have freer hand to do tough but
necessary things for long term / less focus on quarterly results, placating public Shs
Freedom / flexibility• Less annoyance from the Sarbanes-Oxley
Act• avoid SEC “excruciating detail” of pay to
highest-paid executives at public companies• dodges another nuisance: activist hedge
funds.
Feb 27, 2006
US markets going private…
Going-Private Transactions as a Percent of Public Company Acquisitions
0%
5%
10%
15%
20%
25%
30%
35%
1998 1999 2000 2001 2002 2003 2004 2005 2006
Enactment of SOX
Going-Private Transactions as a Percent of Public Company Acquisitions, 1998-2001 & 2003-2006 (by transaction value)
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
1998 1999 2000 2001 2002 2003 2004 2005 2006
Going-PrivateTransactionswhereSurviving FirmFiles SECReports
Going-PrivateTransactionswhereSurviving FirmDoes NOTFile SECReports
% o
f Pub
lic C
ompa
ny A
cqui
sitio
ns
(by
tran
sact
ion
valu
e)
Enactment of SOX
US markets going private…
Source of funds
Sources of Funds - U.S. NonFarm, NonFinancial Corporate Businesses
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Year
% o
f Tot
al S
ourc
es
Net Equity Issues
Debt Instruments
Internal Funds
Pendulum?
Trading / disclosure• Going (staying) private• “Eclipse of public corporation”
Ownership• Institutional investors• “Deretailization”
Copyright © 2007, Securities Industry Financial Markets Association
Source: Federal Reserve Flow of Funds Accounts
Deretailization
0%
25%
50%
75%
100%
1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2006
InstitutionsHouseholds
* Households includes nonprofit organizations
Source: Federal Reserve Flow of Funds Accounts
Deretailization
0%
25%
50%
75%
100%
1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2006
InstitutionsHouseholds
100% institutional in 2033
* Households includes nonprofit organizations
Requiemfor the retail investor?
Sources: SEC Office of Economic AnalysisUS Census Bureau
Retail ownership (brokerage accounts / % US population)
0
20,000,000
40,000,000
60,000,000
80,000,000
100,000,000
120,000,000
1980 1985 1990 1995 2000 2005
Acco
unts
0%5%10%15%20%25%30%35%40%
Accounts% (population)
Sources: Federal Reserve Flow of Funds Accounts
Bureau of Economic Analysis
Retail ownership ($ value / % GDP)
0
2,000
4,000
6,000
8,000
10,000
12,000
Billi
ons
($)
0%
20%
40%
60%
80%
100%
120%Value ($)GDP (%)
Vanishing public markets?
Sources: Federal Reserve Bulletin, NYSE
Listed companies (NYSE, AMEX, NASDAQ)
5,000
6,000
7,000
8,000
9,000
10,000
Sources: Federal Reserve Bulletin, NYSE
Listed companies (NYSE, AMEX, NASDAQ)
5,000
6,000
7,000
8,000
9,000
10,000
SOX
Source: Thomson Financial (excludes best-efforts deals)
Public US underwritings
0
1,000
2,000
3,000
4,000
1985 1990 1995 2000 2005
Billi
ons
($)
Debt *Equity **
* Includes straight corporate, convertible, asset-backed, MBS debt** Includes preferred stock, common stock
Source: Thomson Financial (excludes best-efforts deals)
IPOs (not including closed-end funds)
0
20
40
60
80
1985 1990 1995 2000 2005
Billi
ons
($)
Source: Thomson Financial (excludes best-efforts deals)
IPOs (not including closed-end funds)
0
20
40
60
80
1985 1990 1995 2000 2005
Billi
ons
($)
SOX
“Dark matter”?
Source: Thomson Financial
Total US offerings (public vs. private)
0%
20%
40%
60%
80%
100%
1985 1990 1995 2000 2005
Private placementPublic underwriting
Source: Thomson Financial
Total US offerings (public vs. private)
0%
20%
40%
60%
80%
100%
1985 1990 1995 2000 2005
Private placementPublic underwriting
Leveraging
Institutionalization(and future of private markets)
Source: Federal Reserve Flow of Funds Accounts
Institutional equity ownership ($ valiue over time / % of total market -
0
1,000
2,000
3,000
4,000
5,000
6,000
Billi
ons
($)
Mutual funds (26.9%)Pension funds (23.1%)Foreign institutions (13.7%)Insurance cos (7.9%)Broker/dealers (0.9%)State/local govts (0.5%)Financial inst's (0.3%)
2006
Reports of my death …
The end