Going Native – The Joy of SOX

So far in 2010 we have seen a dramatic increase in the number of shop-to-shop deals and private equity firms pulling public companies out of the public realm. What better timing?

With SOX costs still climbing despite a eight years to settle down, smart CEOs are considering a leap away from the public markets. How much help is the access to public market capital when private equity shops are loaded up with cash and not enough quality deals to do? That money has to go back into play or shops will have to give it back. So, why not take firms with decent assets currently being punished by the market off the market?

Take the gun off your head. Get back to business and get rewarded for what you do best.

This makes sense in light of the coming deluge of legislation. How much more expensive will it be to run your company? If you are a small company as qualified by revenues under $1billion annually, you’ve already experienced the joy of SOX.

Costs of Public Access
Sarbanes-Oxley passed in 2002, and with its passage, the cost to do business as a public company in the US increased over 240% within 3 years.

Actuals for small companies, those with under $1billion in annual revenue.

2001 2002 2004
COSTS Pre-SOX Immediate Impact Normalized
Audit fees $270,000 $540,000 $1million
D&O insurance $315,000 $639,000 $850,000
To be publicly held $1million $1.9million $3.4million

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“Since 2001, lost productivity at smaller companies has increased more than 1,100 percent, and represents the second-highest cost area for companies with under $1 billion in revenue, behind audit fees.”

Not only is cash bleeding out the door to pay dramatically increased audit fees, but staff time is tied up with monkey work instead of driving your bottom line. Regulation is a fact of doing business, but what you getting from the market? More importantly, how do you feel about the pending legislation?

Paladin Principals specializes in working with privately held companies. We love SOX. It’s like strapping a couple of sand bags around our clients’ competitors.