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When Michael Jensen declared in 1989 that the public company was no longer desirable in a modern economy, his comments sparked controversy across the globe.

Almost two decades later, however, the legendary Harvard Business School professor has been proved right - several times over.

During the first half of 2007 alone, the total value of public-to-private transactions reached a record £14bn, up from £6bn in the previous year and accounting for 60 per cent of the total market value bids, according to research by the Centre for Management Buy-Outs.

Those numbers also include the £11.1bn take-private of Alliance Boots by Kohlberg Kravis Roberts, which was the largest ever European leveraged buy-out and the fifth biggest in the world.

Ruthless asset strippers 

Private equity has not always had this much success, however, in convincing management groups of the merits of going private.

Until recently, chief executives and finance directors of publicly listed companies viewed buy-out groups as little more than ruthless asset strippers, pillaging their businesses and taking the loot with them.

This perception has now changed, and for many smaller quoted companies looking to restructure their business or raise capital for growth, going private has become a favourable option.

Research published by the independent investment bank Close Brothers Corporate Finance, conducted in May 2007, suggested public company executives now see the merits of private equity ownership because it offers management quicker decision-making and greater financial rewards.

Corporate governance issues 

Some 39 per cent of the chief executives and chief financial officers of FTSE 350 companies said they would take their firm private given the right opportunity and price.

Almost 75 per cent of those polled said that private firms do not face the same corporate governance issues as publicly-listed companies, while 63 per cent believe private firms face fewer constraints in general.

Richard Grainger, chief executive of Close Brothers Corporate Finance, that if we combine the high percentage of public company senior management who would, given the opportunity, take their companies private, with the even higher level of those who think the current volume of take privates will increase, we start to get a good feel for what will be happening in the year ahead - a further surge of take-privates.

High growth prospects 

Even when going private looks to be the best option, however, such transactions can be incredibly complex to originate and execute.

Industry estimates suggest 80 per cent of public-to-privates considered by private equity groups never reach completion. Private equity will not consider taking just any listed company off the stock market.

Ideally, these buy-out groups are looking for companies with high growth prospects, stable cash flows and a large asset backing as security for loans.

They also look for a team of managers with a spread of skills and talents, finance directors who understand the ins and outs of a balance sheet, and directors with vision to see what the business could become, given time and investment. 

As Bridgepoint, a UK private equity firm, puts it, "Ideally, we look for a number of factors in backing such transactions: narrow institutionally-held shareholder list, ready access to current management, a logical and compelling business case to shareholders and a cogent exit strategy from private equity ownership.”

Inherent conflict of interest 

The first point to understand when considering a take-private is that there is an inherent conflict of interest in any proposed buy-out where some or all of the directors of the bidding vehicle are also directors of the target company.

On the one hand, the bidder will wish to pay as little as possible for the target company while still obtaining the recommendation of the target company's board to accept the offer.

On the other hand, the target company's board will wish to try to extract the best price from the bidder.

To ensure a clean and ethical process, companies need to establish an independent committee to consider the proposals to be made by the management team and to advise target shareholders on whether or not to accept the management team's offer.