Public vs. Private — Wall Street Sways Fortunes

Harris DeWese, chairman and CEO of Compass Capital Partners

Robert Keane, president and CEO of Lexington, MA-based VistaPrint

Roy Grossman, president and CEO of Sandy Alexander.

Gary Stiffler, The MATLET Group.

Joe Baksha, president and CEO of Outlook Group.

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.”

The lure of accessing capital for expanding a printer’s equipment arsenal is one factor that leads private companies to conduct an Initial Public Offering (IPO). VistaPrint, a Web-based printer geared toward small businesses, raised $100 million in its IPO, bolstered by another $60 million obtained through venture capital funding. According to Robert Keane, president and CEO of Lexington, MA-based VistaPrint, the decision wasn’t difficult to make, considering the company’s needs.

“Without this large level of equity funding, plus significant additional debt financing, our business model is untenable,” Keane remarks. “VistaPrint has an explicit strategy of serving micro-businesses, which place tiny orders averaging about $30, including shipping charges. The only way for us to make money at that price is to have ultra-high-volume, capital-intensive facilities, with expensive automation at every step of the process. Being public makes that possible.”

The move helped accelerate VistaPrint’s investment initiative, which also helped filter out possible competition from would-be emulators with smaller bankrolls. The company will have invested $25 million in software development and $80 million in marketing during its fiscal year ending June 2008.

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