Public vs. Private — Wall Street Sways Fortunes

April 2007 By Erik Cagle
Senior Editor

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THE BIGGEST difference between doing business as a publicly traded company, as opposed to one that is privately held, can be found in the boardroom, notes Joe Baksha, president and CEO of Outlook Group. In both cases, the meetings are strategic from a business standpoint. But the board meetings of publicly traded firms invariably turn their attention to the street.

Wall Street, that is. And, in this regard, never has the phrase “perception is reality” rang more true.

“When you’re publicly traded, you talk about the business of being a business,” adds Baksha, whose company was sold in 2006 for $46 million to Vista Group Holdings, a private equity group that includes former Banta CEO Calvin Aurand. “It’s perception. How you have to deal with Sarbanes-Oxley and what others are saying, which adds absolutely no value to the company.”

The direct mail and package printing firm based in Neenah, WI, opted to go private, in part, to generate liquidity for shareholders. As a microcap company, Outlook shareholders were at the mercy of Wall Street.

“Our investors found their investment going up and down, wildly, totally unrelated to the performance of the company,” Baksha says. “It was time to give them the liquidity they couldn’t get by selling their stock. And when you combine that with the cost of Sarbanes-Oxley, that would have put our ‘cost of being public’ bills in excess of $1 million per year, which is 10 percent to 11 percent of our EBITDA. It didn’t make sense to stay public and not give (shareholders) any kind of return on their equity.”

Wall Street vs. Printers

The current atmosphere of the stock market does not seem to be favoring printing companies. In many cases, companies find that private equity investors, with the willingness to take a long-term investment approach as opposed to quarterly gratification, are a more attractive alternative.

Harris DeWese, chairman and CEO of Compass Capital Partners, has consulted on more than 100 industry transactions. He has seen countless company balance sheets and firmly believes publicly traded printers are not being rewarded for their earnings in the public market. Thus, he says, either management or a large shareholder may decide to take the company private to create greater enterprise value.

The difference can, at times, be drastic. “You can have a company that’s getting rewarded at five times EBITDA in the public market, whether it’s NASDAQ, AMEX or NYSE,” DeWese explains. “In a private transaction, it’s worth seven times EBITDA. If you’re a shareholder in that company, your shares are going to be worth more if you take the company private, and you’re probably going to do that with leverage—a big loan—so then your return on equity becomes substantially greater.”

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