This is the submitted version of the following article: Public or Private? A Review of the Eclipse of the Public Company In the Current Environment, Joe Bartlett, The Journal of Private Equity Summer 2011, Copyright (c) 2011, Institutional Investor, Inc., which has been published in final form at: http://www.iijournals.com/doi/abs/10.3905/jpe.2011.14.3.007
The Question: Public vs. Private
The media is fascinated, today anyway, with Facebook’s strategy to reward employees
and investors, raise capital and remain private, its shares trading on SecondMarket and
SharesPost, 1 platforms for secondary trading in private securities. Why would its owners prefer private to public status in this, or any, market environment?
The answer is not hard to grasp. As Prof. Michael Jensen predicted years ago, the public
company model is in a state of “eclipse.”2 Given two companies identical in every detail except that one is public and one private, the progress of the private company will, in all likelihood, handily outstrip that of the public company.3 This explains the arbitrage opportunity available to buyout funds when they take a public company private; the private version outperforms its public ancestor. And why? The following text outlines the reasoning of some world class experts, plus observations of the author, all of which are cited and explored as explanatory of the fundamentals behind the “eclipse” of the U.S. public company in today’s environment.