$10.$ Going private

The process by which a public company ceases to be a public company is referred to as going private. In this transaction, the entire equity of the public company is purchased by a smaller group of investors$$usually with the firm$$s current senior management maintaining or increasing their ownership positions in the firm.

If the equity of a public company is purchased using borrowed funds, it is referred to as a $.$ The outside equity in a buyout often comes from a private equity fund.

Going private affects the liabilities and equity side of the purchased firm$$s balance sheet and rearranges its ownership structure. Private equity funds raise capital from institutional investors and high$-$wealth individuals. With this capital, private equity funds work toward increasing the value of the company and devising a strategy for a profitable exit plan.

True or false: Managers start focusing more on the short$-$term, rather than the long$-$term, impact on the firm$$s value after the company goes private.

True

False

Managers in private companies have$$stakes in the company through ownership and equity incentive plans.