Client Question: Public or Private?

May 4, 2024

I received a question from one of my favorite clients this week (my mom!) She was watching a news story about Culver’s (a popular fast food chain founded in Wisconsin) and asked me if it was publicly traded. The news story was talking about their expansion plans so she was curious if it would be a good investment.

I thought this was a great question and one I had yet to answer here.

What is the difference between public vs. private businesses?

Before diving into ways to decipher a company’s ownership structure, let’s do a quick refresher on the two main categories. A public company (or a publicly traded company) is one that has chosen to seek financing from the broad population (ie: the public). To do so, they have listed shares on a public stock exchange (such as the New York Stock Exchange or NASDAQ in the US) and at such time, any investor with sufficient capital can invest in the business by paying the market price for the shares. These shares can be bought and sold easily (which is where the “traded” part of publicly traded comes from). Some of the best known brands in the world (ie: Apple, Amazon, Delta Airlines, etc) are available for public ownership. Since these companies are owned by a vast array of investors, they are also subject to heightened regulatory and reporting requirements.

Contrast this with privately held businesses. The ownership of these companies is confined to a known group of individuals. It may be one person, a family, a group of partners, and certain outside investors such as private equity firms. Shares are not open for purchase in the public markets. Since the public does not have the ability to participate in the ownership of these businesses, they are not subject to as much regulation and do not need disclose their financial information.

How can I tell if a company is publicly traded or privately owned?

One of the best places to start is the company’s own website. If they are publicly traded, they will often have an Investors Relations page on their site that will contain information such as earnings releases, ticker symbol, financials, management, and other relevant facts and figures.

If you are interested in US based businesses, you can also look at the Securities and Exchange Commissions database (known as EDGAR). This is for public companies only, so if you don’t get any search results, it is privately held

Let’s look at Culver’s specifically. If you go to their website (scroll carefully past all the enticing pictures of food!), you will see “Our Story” at the bottom of the page. This tells the story of a family-owned business that evolved into franchise owner/operator model. There is no mention of a trading “ticker symbol” nor any links to SEC filings. (While not listed on their site, Culver’s remains family owned but also did sell a stake to a private equity firm in 2017 – but again, that’s private ownership).

And if you search the SEC website, it comes back with no results (indicating it is not a public company, which we already confirmed in step 1!)

Why would a company choose to go public?

Before we leave this discussion, one interesting aside. You may be wondering how/why a company would decide to go public. This is a complex discussion but two of the most common answers (although not the only ones) are 1) access to capital and 2) ability to liquidate concentrated ownership.

Access to capital – the public markets represent an enormous opportunity to access capital. By publicly listing, companies are able to raise funds from a much wider array of investors (mutual funds, pension plans, retail investors, hedge funds, etc). If a business is growing and needs access to cash (and lots of it), public markets may be the key to that path forward

Liquidity event – “going public” is also a way to achieve a liquidity event for the owners of a business (that oftentimes have most if not all of their wealth locked up in shares of their business). By listing on a public exchange, company owners (after a lock-up period) can sell their shares and reduce exposure. (Note – a similar outcome can be achieved by a private company by selling a stake to a private equity firm (like Culver’s did). This allows for some liquidity to the owners but does not trigger the same regulation and reporting requirements that going public would

There you have it – hopefully you learned something new, just like my mom did!

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