A going-private transaction (also called a take-private) is a transaction in which a publicly traded company's equity is purchased — typically by a private equity firm, management team, or controlling shareholder — and the company's SEC reporting obligations are terminated by deregistering its securities. Going-private transactions involving affiliates of the issuer are subject to SEC Rule 13e-3 (17 CFR § 240.13e-3) and require a Schedule 13E-3 disclosure filing with the SEC. See sec.gov/rules/final/2023/34-98296.htm for the SEC's 2023 amendments to Rule 13e-3 disclosure requirements.
A going-private transaction removes a public company from the regulated public market, eliminating the ongoing costs of SEC reporting, SOX compliance, and public shareholder obligations. The transaction is typically structured as a merger in which public shareholders receive cash for their shares; the resulting private company is no longer listed on an exchange and has no public reporting obligations. Why companies go private: The annual cost of being a public company — SEC reporting, SOX 404 compliance, D&O insurance, investor relations — can exceed $3-5M for a small-cap company. When a company's market capitalization is too small for institutional investor attention ('micro-cap hell'), the public listing provides little capital-raising benefit while imposing significant compliance burdens. Private equity sponsors also use going-private transactions to acquire undervalued public companies where they believe the public market underprices the company's intrinsic value, and restructure operations outside the quarterly earnings pressure of public markets. SEC Rule 13e-3 — the affiliate going-private rule: When a going-private transaction is conducted by an affiliate of the issuer (controlling shareholder, management buyout, or any entity with a relationship to the company), SEC Rule 13e-3 (17 CFR § 240.13e-3) applies. The rule requires the filing of Schedule 13E-3 — a disclosure document that must include: (1) the purpose of the transaction; (2) whether the transaction is fair to unaffiliated shareholders (the 'substantive fairness' analysis); (3) the basis for the fairness opinion; (4) financial information and projections; (5) any alternatives considered; and (6) voting and dissenters' rights. The SEC's 2023 amendments (Release No. 34-98296, see sec.gov/rules/final/2023/34-98296.htm) enhanced Schedule 13E-3 disclosure requirements for SPAC going-private transactions and strengthened protections for minority shareholders. Financing structure: Going-private transactions are typically financed with a combination of (1) equity from the private equity sponsor (typically 30-40% of total capitalization); (2) senior secured debt (first-lien term loans and revolving credit facilities, typically 50-60% of total capitalization); and (3) mezzanine or second-lien debt (10-20%). The resulting private company carries substantial leverage — going-private LBOs are among the most leveraged structures in corporate finance. Debt incurred in the going-private transaction is typically secured by all assets of the company and guaranteed by all subsidiaries. Deregistration and reporting termination: After the going-private merger closes, the surviving private company files Form 15 (Certification and Notice of Termination of Registration) with the SEC to deregister its shares under Section 12 of the Exchange Act. Section 15(d) reporting obligations (for companies that went public via registration statement) are also suspended when the company has fewer than 300 holders of record. See sec.gov/cgi-bin/browse-edgar for Form 15 filings and the SEC's guidance on deregistration procedures. Minority shareholder protections: State corporate law (especially Delaware) and SEC rules provide minority shareholder protections in going-private transactions. Protections include: (1) special committee approval — the board forms an independent committee of disinterested directors to negotiate the transaction; (2) majority-of-the-minority vote — approval by a majority of non-affiliated shareholders; (3) fairness opinion from an independent investment bank; (4) appraisal rights — dissenting shareholders can demand judicial valuation of their shares under Delaware § 262. These protections are designed to prevent controlling shareholders from cashing out minority shareholders at unfair prices.
SEC Rule 13e-3 (17 CFR § 240.13e-3) applies to going-private transactions conducted by or on behalf of an issuer or its affiliate when the result is to eliminate public shareholders. When triggered, the rule requires filing Schedule 13E-3 — a comprehensive disclosure document addressing transaction fairness, alternatives considered, and financial information. The 2023 SEC amendments enhanced 13E-3 requirements for SPAC-related going-private transactions. See sec.gov/rules/final/2023/34-98296.htm for the current rule and disclosure requirements.
Going-private transactions (take-privates) are typically financed as leveraged buyouts (LBOs): a private equity sponsor contributes equity (30-40% of total capitalization) and raises senior secured debt (Term Loan B, revolving credit) plus potentially mezzanine debt to fund the remaining 60-70%. The resulting private company is highly leveraged — debt/EBITDA ratios of 5-7x are common. The company's cash flows are used to service and ultimately repay this acquisition debt over the PE firm's hold period (typically 3-7 years).
Yes — and many small public companies do, precisely because the compliance costs of being public outweigh the capital-raising benefits at small market caps. A management buyout (MBO) or purchase by a financial sponsor are the most common paths. The transaction requires SEC Schedule 13E-3 filing (if affiliates are involved), shareholder approval, and state law compliance (fairness opinion, special committee). For small companies with limited institutional sponsorship, going-private can unlock significant value by eliminating public-company overhead. For business financing needs before or after a going-private event, apply.