Bill Mann of The Motley Fool just wrote an article titled, “Free Money for the Taking?“. This article caught my attention for several reasons. First, I first discovered going private transactions as a result of Bill Mann’s experience last year with ASA International going private. Second, I think Bill Mann’s current article might be the first mainstream article discussing how to make money off of going private transactions. I have a funny feeling my list of current going private transactions might get a lot more popular over the next couple of weeks. Hopefully, the profit in these deals won’t disappear as a result of the masses flocking to them.
Bill Mann points out reasons why these going private transactions work:
These are tiny companies, and they don’t get much attention, even as they make their denouement from the ranks of public companies. Big funds are not going to bother, nor are institutions, for a few hundred bucks. And when the going private transaction is announced, it creates its own selling pressure.
He also points out several shortcomings associated with these deals:
- These are tiny deals.
- You can’t count on always having these opportunities.
- Some of these transactions require you to hold shares in your name. They occur at the Record Holder level. If you instead own these shares in your brokerage account you won’t get cashed out.
- Some companies reserve the right to cancel the going private transaction if it costs them too much money.
- Some of these transactions might not be completed.
- In other cases, it might so long for you to receive your cash that it might not be profitable.
- Finally, it can take lot’s of patience to buy into these stocks since they are often illiquid. Limit orders are critical.
It will be interesting to see what kind of impact Bill Mann’s article has. Maybe it’s time I start researching tender offers, like the one pointed out by one of my readers, Chuck.
Have a great 4th of July weekend!