The M&A process varies when dealing with a public vs private company. To many, acquiring a public company is more ideal. First-time acquirers need to be aware of the differences between acquiring a public company and acquiring a private company. This article will discuss the nuances of buying public companies, featuring Pranjal Gambhir and Doretta Mistras, both Managing Directors, in Global Investment Banking, Healthcare at Citi.
"At the end of the day, public companies need to answer to their shareholders, which has a different level of scrutiny and responsibility that is not present in private companies." - Doretta Mistras
Federal regulations requires public companies to disclose all relevant financial information due to public shareholders. Public companies must keep an analysis of their strengths, weaknesses, opportunities, and threats. Because of transparency, diligence is much easier, giving buyers more confidence.
Also, valuation is a lot easier. When looking at private companies, you are at the mercy of their expected price. With a public company, you can utilize benchmarks, thresholds, and market value to provide an idea of the company's overall value.
Lastly, public companies have a fiduciary duty to entertain offers. They are bound to their shareholders and seek what's best for the company. If you extend a reasonable offer, then they have to seriously consider it.
Calculating a valuation on public companies also has its challenges. The most sophisticated companies have an idea of their intrinsic value, which does not always match their public market valuation. The goal is to find common ground to arrive at an agreed price.
Government regulations like anti-trust are also a big hurdle to clear when buying public companies. If a transaction exceeds the threshold of market competitiveness, then the deal will not go through.
"The world is getting smaller, and there's a lot of convergence across industries. What was considered non-competitive five years ago is now considered competitive." - Pranjal Gambhir
Geography and politics can also be challenging. If you're a public company buying another public company in another location, you need to de-list that company from the stock exchange.
Lastly, confidentiality is far more critical in a public company. Leaks pose a threat, especially when the deal has a significant stock component. Keeping things quiet is a huge endeavor.
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