The publicly traded company, which provides systems and software for situational awareness and has a presence in Ottawa, pulled its shares off the TSX Venture Exchange earlier this month. The aim was to save money and reduce the amount of corporate information it must disclose.
There are several mid-sized firms that are currently finding themselves grappling with the same issue of public versus private, according to Geoffrey Gilbert, a partner in Norton Rose's Ottawa office and an OBJ Forty Under 40 recipient in 2010.
"This is a discussion going on in that microcap space," he says. "I’ve had a lot of clients over the last eight to 12 months come to us wanting to understand the legal ins and outs (of privatization) and trying to understand whether they’re going to pursue this kind of a strategy."
Below is the advice Mr. Gilbert offers to those debating between remaining public, or going into the private sphere.
WHY GO PRIVATE?
- Global issues, such as Greek debt woes, matter less because a company is less exposed to global financial issues affecting the broader market. "It feels like the world is influencing your stock price, not your actual results and technology. It’s difficult in that small-cap world to get traction among analysts and advisers to suggest why you believe your valuation should be higher."
- It’s easier to raise money, since a public company’s estimated worth is influenced by its stock value on the exchange. "Public companies watch their private brethren raise more money at way better valuations than they can justify because of the handcuffs of being public."
- Reporting and opportunity cost. "No question, there’s so much more compliance cost, whether it’s accounting or legal, the costs are just greater (for) a public company." In addition, Mr. Gilbert notes, competitors can easily look into your business plan and technology.
WHY STAY PUBLIC?
- Greater financial opportunities for a company’s backers. "Everyone loves to call Facebook a failure, because it’s fun to beat up on Facebook. But at the same time, hovering around $27 (a share), that’s still a lot of value unlocked for shareholders. Yes, there’s money lost, but everyone forgot they went from zero."
- It’s much easier to sell your corporate story, since the information about your technology is freely available. "There’s a story that’s attracting analysts and advisers, and that’s attracting people to the stock."
- Stock becomes a currency that can be used for mergers and acquisitions, or to motivate employees through stock-based compensation. "RIM, in the early days … had an incredibly motivated employee base when they went public because they were all stock option holders and they realized incredible returns."
From the corporate perspective, Mr. Gilbert adds, bankers are more motivated to perform new issues and help deploy capital to let the company "make more product or do whatever it is you need to take your company to the next level."
ON THE PUBLIC'S SIDE
Publicly traded Ottawa tech firm Mitel is looking to expand its presence in the markets. It recently added a listing on the Toronto Stock Exchange, which is in addition to its current one on the Nasdaq, while not selling any more shares.
The firm expects the move will attract more attention from Canadian analysts and investors. Several people had approached Mitel in recent months expressing an interest in the stock, said chief financial officer Steve Spooner.
"They look at gold being down, natural resources being down, and they’re looking to diversify their holdings," he said after quarterly results were released in late June.
"Notwithstanding that Mitel is seen as a small tech company by U.S. standards, in Canada it is one of the largest."