With volatile "bungee-cord" equity markets shifting rapidly every trading hour, CEOs are increasingly examining the futility of being a public company. Many CEOs ask if remaining public is in the shareholders' best interests and if the current market price accurately reflects the intrinsic value of their company.

Going private is not solely for multi-billion dollar companies. Indeed, in spite of a significant shift in the credit markets, companies with a market capitalization below $500 million may have the most to gain as private equity investors shift away from the larger syndicated deals and look toward the relative certainty of the "club loan."

LOWER COMPLIANCE COSTS

Based on a 2007 study published by Foley & Lardner, since the enactment of the Sarbanes- Oxley Act, the average cost of compliance for companies with annual revenue below $1 billion now exceeds $2.8 million. CEOs should not feel alone in asking if this is too high a price to pay.

From the same report, more than one in five CEOs are considering going-private transactions as a result of the burden of corporate governance and public disclosure reform.

Another enticement is easy access to capital. In the past, as companies have grown, they have tended to look to the public market as the primary means of access to capital, to gain acquisition currency and build liquidity for shareholders. But now, with the huge influx of capital into the private equity markets, this playbook is obsolete. By contrast, small-cap public companies may actually gain greater access to capital today as a private enterprise.

Is going private the best choice for you? Small companies that have gone public have shared the following characteristics: They have a thinly traded stock; low correlation between stock price and the company's intrinsic valuation; minimal coverage by analysts; a high level of ownership by insiders; and little need for capital for acquisitions.

Companies that go private find that their compliance, legal and accounting costs are lower and that there is less of a focus on quarterly results, a decreased risk of litigation, an ability to address internal issues away from public scrutiny, and the potential of a future liquidity event that will reward shareholders.

CAPITAL IS ABUNDANT

The huge influx of capital into private equity and the development of the junior and second lien markets have created a new source of capital for the private middle-market company.

Private Equity Firms Targeting the Middle Market. There are now a number of private equity groups actively pursuing both control and minority investments in private companies with net income below $2 million.

Mezzanine Capital. A trend toward increasing leverage rates has significantly improved the ability of companies to access debt capital. In today's market, lending leverage rates over four times cash flow are not uncommon. Many private equity firms have formed their own in house mezzanine lending firms in order to offer one-stop-shop financing.

Senior Lenders. Companies should not forget the ability to leverage assets, such as receivables, inventory, property and equipment, to receive a lower cost of capital.

RISKS OF GOING PRIVATE

There is a solid legal and investment banking framework to support companies that want to go private. By following this well proscribed methodology, much of the potential liability faced by a company's management and board may be mitigated.

Major risks include:

Director' s "Revlon Duty." When selling control of a company, directors have a duty to obtain the best price reasonably available for shareholders. One way the board can gain protection from potential litigation is to obtain a fairness opinion that evaluates the financial fairness of the transaction.