I just ran across an article in BusinessWeek regarding companies going private. In “The SOX Appeal of Going Private” (yikes that is a bad title), Matt Morrow discusses the impact of Sarbanes-Oxley on small businesses. He notes that analysts from Standard & Poor’s believe that Sarbanes-Oxley (SOX) is a relatively minor factor in the recent wave of companies going private. Standard & Poor’s also notes that the cost of SOX compliance impacts small corporations more than larger companies, but that small corporations have become acquisition targets for private equity firms and that is why many of them are going private. My own research on companies going private indicates that most cite Sarbanes-Oxley costs as the main reason they are going private.
At the end of the BusinessWeek article, Morrow notes S&P Chief Investment Strategist Sam Stovall warning “…that investors face a very difficult task if they try to cherry-pick the small-cap companies that are likely to be taken private.” That is a rather rediculous statement since the profit in going private transactions really comes from investing in companies after they disclose that they are going to be taken private. The article doesn’t even mention the possibility of profiting from the risk arbitrage opportunity that these stocks present even after they have announced that they are going private. So much for being enlightened about profitable investment opportunities from the professionals at S&P and BusinessWeek. At least you can learn about these opportunities by gaining access to the going private transactions list here on Fat Pitch Financials.