Why Some Companies–No Matter How Successful–Should Stay Private

It could be that some businesses are much better off being private, even after years as public companies.

Just ask Krispy Kreme, the iconic doughnut maker that will go private by early summer, following a buy-out from JAB Beech, a private equity firm that announced it will acquire the brand for $1.35 billion.

Freed from the demands of public market investors who tend to focus on short-term returns, some companies may find renewed life that harks back to when they were small and privately held, business experts say. They can strengthen their brands, double down in the communities in which they operate, and get back to their roots as innovators.

“[Krispy Kreme] could take an approach to the business that is more family-friendly and more small-business friendly when you don’t have the pressure of quarterly returns,” says Bruce Bachenheimer, a clinical professor of management at Pace University in New York.

JAB Beech is the investment arm of the Reimann family, billionaire owners of a German consumer goods company called Joh. A. Benckiser, The New York Timesreports. In recent years, it has been snapping up premium coffee companies and other related food brands, including Peet’s Coffee, Caribou Coffee, Keurig Green Mountain, and Einstein Noah Restaurant Group, maker of the eponymous bagel.

JAB’s strategy has not involved massive management restructuring and taking on leverage, as is sometimes the case with private equity buyouts. Rather, it has let the companies it purchases carry on in much the way they previously had been, says Nick Setyan, a senior vice president of equity research at Wedbush Securities.

It is not that uncommon for once-popular public brands to go private. Perhaps the biggest example in recent years is Dell, which went private in 2013 after a record $24 billion buyout by founder and chief executive Michael Dell and private equity firm Silver Lake.

“Privatization has unleashed the passion of our team members who have the freedom to focus first on innovating for customers in a way that was not always possible when striving to meet the quarterly demands of Wall Street,” Dell wrote in a Wall Street Journal editorial in 2014, adding that innovation and the short-term demands of shareholders are frequently at odds with each other.

Krispy Kreme was founded in 1937 by Vernon Rudolph who, according to the company’s website, sold his specialty yeast-risen, glazed donuts to grocery stores in the old section of Winston-Salem, North Carolina.

The company went public in 2000 to tremendous initial success. Its shares opened at $8, and three years later soared to nearly $50. The company’s share price is a far cry from that today–it stood at just over $20 as of Monday afternoon–but it has increased by more that 50 percent since October.

It’s not inconceivable that Krispy Kreme would go public again, Bachenheimer says, as time off the public market can increase the company’s cachet and value.

“For the employees and for the primary stakeholders, the distributors and retailers they are associated with, it could be taking a smaller business, longer-term approach” that could help increase the brand’s value, Bachenheimer says.

source: inc.com BY JEREMY QUITTNER


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