Changing a private company into a public company results in a substantial increase in the value to shareholders. History shows that most private companies are liquidated rather than sold, because a buyer cannot be found. Statistics show that sellers of private companies, fortunate enough to find a buyer, receive an average of 4 to 6 times their net earnings. Rarely is the seller cashed out.

• By comparison, public companies sell at an average of 25-30 times their net earnings. The reason being that, unlike a private company purchase
• investors have no management responsibilities
• investors can purchase a very small portion of the company
• investors can get their money back by selling their shares
• there are millions of investors.

Example: ABC Manufacturing Company earns $1,000,000. If a purchaser could be found, the company would likely sell for about 5 times earnings. As a private company, the shareholders would get $5,000,000, less commissions. The shareholders of ABC would most likely have to carry back financing, to compete with other sellers. The majority of private companies are liquidated because buyers cannot be found

If ABC Manufacturing, with $1,000,000 in earnings, went public it would be worth about 25 times earnings, totaling $25,000,000. If the owners of ABC sold 20% of their shares to the public, they would receive $5,000,000 cash and still own $20,000,000 in stock of a public company.

Five times earnings for a private company.

Twenty five times earnings for a public company.