Privately Held Companies

In our research on currency and securities printers, we’ve come across many privately held companies. As a brief review:

  • Crane & Co. – privately held, still family-owned (non-family CEO)
  • ABnote – privately held
  • De La Rue – publicly traded, listed on the London Stock Market (DLAR)
  • Giesecke & Devrient – privately held, still family-owned (non-family CEO)
  • Oberthur Fiduciaire – privately held (delisted in 2008)

So, private companies:

Private companies may issue stock and have shareholders. However, their shares do not trade on public exchanges and are not issued through an initial public offering. In general, the shares of these businesses are less liquid and the values are difficult to determine.

Pros and cons of private companies:

  • The biggest advantage of going public is the ability to tap the public financial markets for capital by issuing public shares or corporate bonds. Having access to such capital can allow public companies to raise funds to take on new projects or expand the business.
  • The main disadvantage of being a publicly-traded company is that the Securities and Exchange Commission requires such firms to file numerous filings, such as quarterly earnings reports and notices of insider stock sales and purchases.

Because they don’t trade publicly, it can be hard for new investors to become involved with a private company (obviously). But it’s not unheard of–

Instances do arise where private firms will seek to raise capital and ownership opportunities present themselves. For instance, many private companies will offer employees stock as compensation or make shares available for purchase. Additionally, privately-held firms may also seek capital from private equity investments and venture capital.
Although private companies cannot raise capital in the public markets, they do have access to it through other sources like bank financing. Private companies that have been in business for long periods of time usually have established relationships with their banks and can tap into commercial lines of credit when needed. The companies can also use their assets or inventory as collateral for the loan.

Investment in private companies:

  • From an investment standpoint, a private company is defined by its stage in development. For instance, when an entrepreneur is first starting a business he or she usually receives funding from a friend or family member on very favorable terms. This stage is referred to as angel investing, while the private company is known as an angel firm.
  • Past the start-up phase is venture capital: investing where a group of more savvy investors comes along and offers growth capital and managerial know-how and other operational assistance. At this stage a firm is seen to have at least some long-term potential.
  • Past this stage can be mezzanine investing, which consists of equity and debt, the last of which will convert to equity if the private company can’t meet its interest payment obligations. Later-stage private investing is simply referred to as private equity and is currently a multi-billion dollar business with many large players.

As an individual investor, there are other ways to invest in a privately held company:

Familiarize yourself with the different types of privately held corporations. A limited partnership offer (LPO) is a type of privately held corporation commonly set up to limit liability for specific projects, such as real estate developments.

Private placement memorandum (PPM) stock offerings are a method used by companies to raise capital quickly and inexpensively.

By far the most common privately held stock people invest in is stock issued under small corporation offering registration (SCOR) rules. Although the company remains private, SCOR stock can be sold to any number of people. SCOR stocks are often called hybrids because they share some of the characteristics of publicly traded stocks.

One of our currency companies, Oberthur, was publicly traded but then delisted in 2008. Why would a company do this? According to smartinsights.net,

Delisting Oberthur will shelter the company from market pressure, and also “facilitate long-term strategic and industrial investments necessary to its future development”, the company says. One of the objectives of such a move is to give more flexibility to Oberthur management.

via Investopedia, “Valuing Private Companies,” “Staying Private a Matter of Choice”, “How To Invest In Private Companies”

also Ehow.com, “How To Invest in a Privately Held Company”

and Smart Insights, “Oberthur to Become Private”

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  1. […] have public shareholders – they can choose whether to be privately or publicly held. In a privately held company, the shareholders are a much smaller group of people, who buy and sell shares among themselves […]



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