What do a security/cash handling company; a funeral home operator and a wind power company have in common?

On the surface, nothing at all, operationally speaking. But philosophically, they have all decided that it is simply not worth it to be a public company anymore.

Recently, Garda World Security and Arbor Memorial agreed to be sold. Western Wind Energy, meanwhile, decided a very public sale of the company was in shareholders’ best interests. 

Notable also in this group is that only one of the three—Arbor—pays a dividend, and it’s a tiny one at that. 

Why have these—and many other companies—forsaken the stock market? Isn’t the market the path to untold riches for owners of companies, particularly growth companies?

Well, maybe not anymore. Investors, it seems, only care about dividends and income these days. If your company doesn’t pay a nice dividend—forget about it! Investors really don’t care how fast you are growing, how inexpensive you are, how strong your acquisition record is or how great your balance sheet is. Without that regular dividend payout, they just lose interest. 

With stock markets exceptionally volatile over the past five years, and investors getting burned on many high-flying, high-crashing growth stories (like Research in Motion, Green Mountain Coffee Roasters, or Netflix), it’s easy to see why investors have a continuing aversion to growth.

Dividend-paying stocks have massively outperformed other stocks. Money is pouring into income funds. Growth stocks are old news, are being left behind, and companies are getting sick of it and throwing in the towel.

So, the Board of Directors of growth companies, reeling from their stock doing nothing for years, are suddenly much quicker to consider a decent bid for their company. In addition to (usually) a premium takeout, these companies save hundreds of thousands of dollars by simply not being public anymore. Going private also frees up countless hours of executive time spent filing and preparing public documents, and this usually results in a more focused company. And of course, the stress level likely drops for executives once their company goes private.

But investors are missing out. Western Wind was languishing with its shares near $1 per share before it decided to sell. Now, the stock is more than double that, and investors expect more in a take-out. If it was allowed to grow and prosper, however, who knows what the price might have been in five, ten years?

Garda got tired of the market not appreciating its growth by acquisition story. Investors saw risks in every company it bought, but management saw, well, growth. After giving it a good shot trying to get investor respect, management decided to join forces with a buyer and get out of the market altogether.

Arbor shares have done OK, but saw its chance to get out of the market with a bid led by some of its biggest investors. The premium on the takeout was 42%, but the shares were actually higher than the $32 current bid way back in 2007, so its easy to see the frustration of management and Arbor shareholders with the stock market. 

What will change this trend towards privatizations? Well, with interest rates likely to stay low maybe forever a long time, if investors keep focusing on dividends and income the buyout trend for growth companies is surely likely to continue. Why spend money on a stock market listing, fees, and endure regulatory headaches if investors are just going to ignore you?

Nope, the only thing that will change this trend is a rising stock market. Hmmmm, let’s see: If you own growth companies your chances of a takeout are getting better. If takeovers slow down, it’s probably because the market is likely much higher than where it is now. Considering those two options, suddenly the lack of dividends from growth companies may not be looking so bad. 

Note: Here is the link to Western Wind's website, as it is the only one of the three noted above not to actually had a takeover bid in hand right now.

http://www.westernwindenergy.com/s/Home.asp