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WHAT PUBLIC COMPANIES CAN LEARN FROM PRIVATE EQUITY

Article by Heino Meerkatt and John Rose From BOSTON CONSULTING GROUP

AMJAD HUSSAIN

REG NO: 3500-FMS-BBA-S12DIFFERENCE B/W PUBLIC AND PRIVATE COMPANY

PUBLIC COMPANY A public company is a company that has permission to offer its registered securities (stock, bonds etc.) for sale to the general public, typically through a stock exchange

PRIVATE EQUITY/ COMPANYAprivate companyis different from apublic companyin that itsstockis not traded on public exchanges like the New York Stock Exchange,Nasdaq, American Stock Exchange, etc. Instead,sharesof private companies are offered, owned and traded privately among interested investors

Business firm in the private (non-public) sector of an economy, controlled and operated by private individuals (and not by civil servants or government employees).

PRIVATE LTD. No. of members can be 2 to 50. Minimum number of directors present should be 2.Can accept deposit only from members, directors or their relatives.Cannot invite public to subscribe for shares or debentures. No limit on fees of directors.Can restrict transfer of shares.

PUBLIC LTD. No. of members can be 7 to unlimited. Minimum number of directors present should be 3. Can accept public deposits.Can invite public to subscribe for shares or debentures. Director should not get more than 11.5% of profit.Shares are freely transferable.

, the value of private-equity deals worldwide grew at roughly 20 percent per year, as funds from institution-al investors flowed into private equity on the expecta-tion that it would deliver superior returns

. One reason investors expect higher returns from private equity is that it enjoys a lower cost of capital owing to higher leverage and the easy availability of debt.

But a second key reason is that private equity offers a distinctive gover-nance model. In many respects, that model is superior to the one found at most public companies because it allows private-equity firms to drive changes in a com-panys fundamental value-creation performance5 THINGS IN PARTICLUAR THAT PUBLIC COMPANIES CAN LEARN FROM PRIVATE EQUITY:

1- BENEFITING FROM SOPHISTICATED INVESTORS2- Building an Engaged and Effective Board3- Creating Value Through Growth4- Developing a Healthy Sense of Urgency5- Getting Managers to Act Like Owners

1- BENEFITING FROM SOPHISTICATED INVESTORS - Private-equity firms tend to be highly sophisticated and extremely well-informed investors- deep transparency b/w managers and owners in Private equity - create value on the basis of outside in analysis.- on contrast in public companies share are sold in public capital markets and causes contradictions in management team range of objectives and interests.- public company have diverse group of owner whose interset fluctruates as shares are traded- public company senior mangment should make srategic dialouge with leading investors who represent a prarticular type and should not put it to investors relations department. - . The advantage of developing a rich understanding of investors Investors often have information and perspectives that managers lack. They meet regularly with management teams across a wide range of similar companies.

2- Building an Engaged and Effective Board

For the same reason that most privately held compa-nies have more focused and knowledgeable investors, they also have more engaged and effective boards.