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A publicly traded company is a company that offers securities for sale to the general public. They usually do this with a stock exchange or through market makers, if they are operating in the over-the-counter markets.
The main advantage of public financing is that the shares are owned by a great number of shareholders. Because of this, it is easier to raise large amounts of capital. In addition to increasing the number of shareholders, a company can gain access to less expensive sources of capital.
They achieve an enhanced public image and, therefore, exposure and prestige. Because of that, they can attract a higher quality of employees and a higher level of management talent.
Public companies are also in a better position to facilitate acquisitions, which they would do through shares of stock. They create additional multiple financing opportunities, including debt, equity, and perhaps cheaper loans for financial institutions.
A privately held business is generally one whose shares are not available to be traded by the public. They are usually owned by the founders of the company, their families and estates, or by a very small group of investors.
Private financing also holds several advantages. There could be increased capital because investors are willing to buy a company's stock at a higher price than if it was trading on the market because they are willing to pay more in order to privately control the firm.
There is also the possible reduction of administrative costs, like reporting and registration, along with regulation costs and communicating with shareholders. The private firm saves all of these costs.
Often, it is management that takes over and privately controls a company. When this is the case, they have an immediate incentive to improve company performance, because they are key investors as well. This also brings a higher level of investor involvement. Publicly traded companies' shareholders are a large anonymous group that are often uninformed and do not typically know the business, much less the daily operations, and therefore not in a good position to manage it. Private investors can offer expert knowledge and direct oversight in a way that can benefit performance.
While a company can become public through an IPO, a company can also go private through a leveraged buyout. A leveraged buyout is an acquisition of a company where the purchase is financed through high levels of debt – perhaps a combination of 10% equity and 90% debt.
The cash flows of the business being acquired finance the debt. Because the debt usually has a lower cost of capital than the equity, the returns on the equity increase with the increasing debt. The debt effectively serves as a lever, hence the term leveraged buyout.
Targets for a leveraged buyout would be companies
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