Accepting a private-equity tender offer and narrowing to one business (2012)

The time bought by leaving the market

Companies that go private almost always explain themselves in one sentence: we want to invest without being swayed by short-term results. In Yasuragi’s case that sentence did not stay empty, because what would change after the exit had already been decided in concrete terms. Shifting purchasing from auctions to brokerage and direct buying meant replacing both how existing staff worked and the standards by which they were judged — not the sort of thing that improves the numbers in the year it begins. Whether the same could have been done while answering to the market every quarter is still worth thinking about.

At the same time, the case shows that going private is not itself the answer. The company recovered not because it left the market but because, having left, it narrowed its buyers down to an income band, inverted the order in which it set prices, and let go of its peripheral businesses. The fund’s capital and the outside executive it installed functioned as the conditions for executing those decisions quickly. That a judgement usually discussed as being about the merits of listing was in practice a question of how far to narrow the business is instructive for mid-sized companies facing the same choice today.