Why we prefer to invest in public companies
As an investor, you gain these benefits of owning shares in a public company:
• Liquidity and ownership is transferable. This allows each
individual investor to plan their own “exit strategy” based upon their attitude
towards “risk” and “reward” and the investment returns they are looking for.
• Access to Capital. There are many funding sources available to public companies, which are not available to private companies. There is also the ability to do both private placements and registered public offerings. Participants in the private placement can benefit from buying stock (usually at a discount from the most recent publicly traded price), holding it for a period of 6 months to a year and then having free-trading stock to sell in the open market.
• Established value for stock by the market place. Over the long term, with all factors being equal, a publicly traded company is assigned a higher value than a private one. In many cases this differential can be 100%. In other words, a company could be valued at $25 million as a private company or $50 million plus as a publicly traded company.
• Use of common stock as equity or currency for acquisitions. The publicly traded stock can also be used to structure the transaction by using convertible securities, sometimes with the conversion rate set higher than the currently traded price of the common stock. Once the acquisition is announced, there may be an increase in the price of the stock to justify the higher conversion price.
• Compensation. Stock can be used to compensate both management and employees as a way to conserve cash. In a competitive market for top-caliber management talent, having stock options on a publicly traded stock is more valuable and desirable that having the same options in a privately traded company.
• Valuation. Investors can determine the current market valuation of their investment by either calling their broker or on the Internet.
• Audited Financial Statements, along with mandated disclosures of major corporate developments, are requirements of most publicly traded companies
• Regulated by S.E.C. This makes publicly traded companies safer for investors because the President/CEO and the Chief Financial Officer must attest to the accuracy of the financial statements.
• Prestige and Legitimacy are usually attached to companies that are publicly owned.
If you are interested in this type of investment opportunity please contact us for more information.