(The mistakes boards make most often)
By: John S. Morlu II, CPA
Going private is not a magic fix. Boards often approve take-privates for the wrong reasons. Here’s when it usually goes wrong.
1. Mistake #1: “We’ll go private to fix bad strategy”
🚫 Wrong. Going private does not fix weak fundamentals. Private ownership only removes public pressure — it does not create intelligence.
Going private does not fix:
- Weak products
- No competitive advantage
- Bad leadership
- Broken culture
If the plan is unclear in public, it will be worse in private.
Red flag: Management can’t clearly explain how value will improve.
2. Mistake #2: Too much debt for a fragile business
🚫 Deadly. Companies should not go private if cash flow can’t carry the load. Debt doesn’t care about excuses, and leverage turns small mistakes into fatal ones.
Companies should not go private if:
- Cash flows are unstable
- Revenues depend on trends, ads, or hype
- Margins are thin
- The industry is shrinking fast
Red flag: The deal only works if “everything goes right.”
3. Mistake #3: Insiders rushing the deal
🚫 Governance failure. When insiders are on both sides of the transaction, boards sometimes rush approvals instead of pushing hard on price, terms, and process.
This often happens when:
- Founders
- CEOs
- Controlling shareholders
It can lead to:
- Low premiums
- Shareholder lawsuits
- Reputation damage
Red flag: No independent committee. No serious challenge to price.
4. Mistake #4: “The stock price is embarrassing”
🚫 Emotional decision. Boards sometimes approve take-privates because the stock is down, activists are loud, or the media is negative. That’s fear — not strategy.
Markets are noisy. Running from noise is not leadership.
Red flag: The main reason given is “market misunderstanding.”
5. Mistake #5: No credible exit story
🚫 Private equity trap. A good take-private has a clear answer to what happens next. If the exit is vague, the risk is real.
A credible exit story answers:
- Who will buy this later?
- Or how will it IPO again?
- Or how will the debt be refinanced?
Red flag: The exit depends on “market conditions improving.”
6. Mistake #6: Cultural denial
🚫 Silent killer. Private ownership often comes with layoffs, cost discipline, faster decisions, and less comfort. If leadership avoids hard choices before going private, it will be worse after.
Private ownership often means:
- Layoffs
- Cost discipline
- Faster decisions
- Less comfort
Red flag: Leaders promise “nothing will change.”
Board-Level Reality Check: Plain Truth
A company should only go private if all three are true:
- The business has strong, predictable cash flow.
- Leadership has a clear, credible transformation plan.
- Debt levels allow breathing room — not panic.
If any one is missing → don’t do it.
Author: John S. Morlu II, CPA is the CEO and Chief Strategist of JS Morlu, leads a globally recognized public accounting and management consultancy firm. Under his visionary leadership, JS Morlu has become a pioneer in developing cutting-edge technologies across B2B, B2C, P2P, and B2G verticals. The firm’s groundbreaking innovations include AI-powered reconciliation software (ReckSoft.com), Uber for handymen (Fixaars.com) and advanced cloud accounting solutions (FinovatePro.com), setting new industry standards for efficiency, accuracy, and technological excellence.