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| 2003
News and Press Releases |
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HEADLINE:
Small Companies Quit Stock Market To Go Private
By: Lauren Weber - Reuters
Forbes. November 21, 2003
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EXCERPT: Back in the late 1990s, as the stock markets climbed, visions of growth, liquidity and a soaring stock price were dancing in the heads of the owners of Millbrook Press Inc., an educational publisher. Then the markets tanked. And now, like many other small-cap companies, Millbrook is getting out. The Connecticut company recently announced a plan to deregister its shares and go private. So did Eateries Inc., a restaurant company that operates the Garfield's and Pepperoni Grill chains. And Global Seafood Technologies Inc., which is in the food and fishing-bait businesses. And SEEC Inc, a business software provider. "The costs of being public, especially for small companies, simply outweigh the benefits," said Vincent Orza, chief executive of Oklahoma City-based Eateries. Audit expenses are skyrocketing, along with insurance and legal costs, he said. Experts say the attrition may be part of a necessary weeding-out process in an overcrowded stock market. "The SEC realistically can't police every $20 million firm that goes public," said David Skeel, a law professor at the University of Pennsylvania. REGULATORY BURDEN Small companies point to the financial burdens of the Sarbanes-Oxley Act, the accounting and corporate governance legislation passed last year in the wake of huge scandals that sank behemoths like Enron. That law requires more accountability from audit committees and top executives, so companies are paying for more time with outside auditors and lawyers. Greater legal exposure leads to higher insurance costs. The rules make no distinctions for small-cap companies. "I may as well be the president of Intel," David Allen, CEO of Millbrook Press, said. "They don't make specific arrangements if you're a smaller company." He guessed it cost Millbrook about $150,000 to $175,000 per year to maintain public status, a significant chunk of change for a company with sales of $18.5 million in 2002. Millbrook had a market capitalization of just $2.1 million when it announced it would unlist its shares. The companies have other good reasons to get away from public scrutiny. Millbrook was the only publisher of its size that was public, Allen said, and its filings gave competitors access to sensitive financial information that Millbrook couldn't access from them. That put the company at a competitive disadvantage, he said. Going private also relieves the pressure on executives to manage for the short term, allowing them to think strategically for the future without worrying that a single bad quarter will kill the stock, said John Reiss, global co-head of the mergers and acquisitions practice at New York law firm White & Case. Finally, it frees up money for growth that would otherwise be spent on SEC compliance. Right now, "we're spending a lot of money (on audits) that should be used to build restaurants," Orza, of Eateries, said.
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