John LoPinto Notes Why Private Equity Goes Public: Brace Yourself

John LoPinto

November 26, 2021

John LoPinto Notes Why Private Equity Goes Public: Brace Yourself

Different companies have the option to opt to make their stock public or private, as noted by John LoPinto. However, once a company is private or public doesn’t mean that the stock has to remain a private or public stock. This can all change as the company sees fit.

Tapping into Private Equity in Two Ways

There are different ways that private equity may go public. One is when a management company takes over a portion of the company. For instance, the company may give 20 percent to the management company. In return, the management company receives a portion of the profits from management fees and rollover interest. However, the management company doesn’t gain any voting rights in the process, John LoPinto reveals.

Private equity can go public in another way. With this approach, the company floats shares into a private equity fund. A management company then uses the funds to invest.

It’s also possible for a private equity company to switch to a publicly-traded company outright.

Benefits of Private Equity Going Public

Switching from private to public could be for a few reasons.

Could Increase Profit

A public company may go private if the owner or owners believes that the company could profit more. The same applies to a company that goes from private to public.

Founder Can Exit the Company

Sometimes, the company owner isn’t trying to make more profit when they choose for the company to go public. In some cases, the company’s founder wants to exit the company and will do so by switching the status to the public.

Change the Company’s Dynamic

When a company goes public, it will naturally change the company’s dynamic. At this point, the company has a responsibility to shareholders, and that special relationship differs from having limited partners.

Why the Opposite Occurs

As mentioned above, John LoPinto says that some companies go from private to public. This is especially beneficial for companies that are struggling. The change could allow the company to restructure. Additionally, it could also mean that the company could make operational changes. A struggling company could take time to go private and then become a publicly-traded company in the future once any issues have been taken care of accordingly.

Additionally, a public company is in the eyes of the public. Active shareholders may follow the company carefully and critically assess the company, possibly leading to scrutinizing. The company can stop this by going private.

Companies tend to change their status as they see fit based on where the profit is. Additionally, which option suits their needs could be based on how well the company is performing. John LoPinto recommends following companies closely and determining why they’re changing status before getting ahead of yourself and investing in a company that recently underwent a change.