Last week, Best Buy co-founder Richard Shultze told the company’s Board that he wants to take the company private. He already owns about 20% of the outstanding shares, so the market estimates that he needs to come up with something in the vicinity of $7B USD to get the rest. Best Buy’s transition over the past few years from being a favorite case study of cross-channel retail prowess to being perceived as one of retail’s “walking dead ” has been hard to watch. But as anyone who has spent any time in retail knows, it’s a cycle: yesterday’s hero is often today’s goat, and visa versa (take Home Depot as just one example). Mr. Shultze believes that Best Buy has a better future; “There is no question that now is the moment of truth for Best Buy and that immediate and substantial changes are needed for the company to return to its market-leading ways…After assessing all of my options, it is my strong belief that Best Buy’s best chance for renewed success is to implement with urgency the necessary changes as a private company. ”

Another “going private ” story happened just three weeks ago, when Peet’s Coffee & Tea announced that they have entered into a definitive agreement with Joh. A. Benckiser (JAB) where JAB will acquire Peet’s for $73.50 per share in cash, or approximately $1 billion. Unlike Best Buy, Peet’s has enjoyed recent praise from market analysts, due to the success of its direct-to-store distribution strategy. And unlike competitor Starbucks, which gets over 80% of its revenue from stores, Peets has focused on building out the channel to retailers such as Safeway, Whole Foods, Kroger, Target, and Walmart. In grocery stores where it competes head-to-head with Starbucks, Peet’s has a higher market share, according to some market analysts.

Privacy Please

What the stories have in common is that they are both public companies that are going “private “. This is something that I can personally understand, having been both a member of a public company’s operating committee and the CEO of a private equity-owned operation.

As for being a public company, I’m not sure I’d wish that on anyone. Wall Street’s earnings and stock price expectations can become an obsession that gets in the way of long-term planning. I distinctly remember going to New York with several other executives from the public company for an annual “beauty show ” presentation to investment analysts. Ours was one of many companies on the bill that day, and we had 20 minutes to share with them our strategy for moving the company forward (we had carefully planned and rehearsed almost every nod and wink to maximize our message). But on the stage in front of several hundred “Wall Street types “, I realized that we had nothing to say to them that would change their opinion of our earnings prospects – and those opinions would play a big part in our outcome. In other words, we weren’t really in control at all.

Being “private ” certainly takes that pressure away, and it also frees a company from having to deal with the regulatory, administrative, financial reporting and corporate governance burdens that public companies have. Those things can shift management’s focus away from operating and growing the company. Companies like Pets Plus and Guitar Center have been able to spend the time, money, and effort building stronger businesses without the constant pressure from Wall Street and its relentless demands for quarterly “pops ” (one almost feels sorry for companies like Apple when headlines like “Apple disappoints analysts despite posting a 21% rise in profits ” from the UK Guardian appear).

But being “private ” is no cakewalk either. In my (one) case, the company where I worked was under brutal pressure to cut costs and increase the free cash flow that our private equity owner demanded. It was no fun.

Fun or not, the general trend towards private ownership of companies is on the rise. According to the The Economist (May 19, 2012), “The number of public companies has fallen dramatically over the past decade—by 38% in America since 1997 and 48% in Britain. The number of initial public offerings (IPOs) in America has declined from an average of 311 a year in 1980-2000 to 99 a year in 2001-11… The burden of regulation has grown heavier for public companies since the collapse of Enron in 2001. Corporate chiefs complain that the combination of fussy regulators and demanding money managers makes it impossible to focus on long-term growth. Shareholders are also angry. Their interests seldom seem to be properly aligned at public companies with those of the managers…. “

What Would You Buy?

The recent news about Peet’s and Best Buy brings up the question, “what would you buy? ” The RSR analysts kicked the question around, and the consensus was, “a high-end specialty retailer whose business is not dependent on any one ‚Äòevent’ to have a good year. ” Thinking about this a little more, I’m reminded of the “value/offer grid ” that RSR sometimes uses to pinpoint retailer brand strategies (Figure).

The upper right quadrant of this chart is “magical “, where the value to the consumer is really all about self esteem ( “me “) and the brand experience is truly unique and special. Neiman Marcus lives in this space. So, to the extent that a company’s value proposition to consumers is towards the right of this chart it might be worth spending your billions on. And to the extent that the value offer is all about “me ” but there’s work to do on “the experience “, there could be a tremendous upside for your investment.

Peet’s is all about “me “. I was a student at UC Berkeley in the late ‚Äò60’s, when Alfred Peet ran his one-and-only store on the north side of the campus. Berkeley was (and still is) a coffee addict’s mecca, but the 5 or 6 blocks to Peet’s was worth the walk even for a coffee snob with options. The company that Alfred Peet founded has found a way to extend that brand value well beyond its Northern California nexus. The task for the new owners is to not screw things up (and for that reason, the company will continue to be run by the same management team).

Best Buy is not on the right side of the chart. What they sell can be found in a lot of places and for about the same price, and the stores aren’t that special of an experience either. There’s a lot of hard lifting for the management team if and when the company goes private.

So with my money? I’ll take mine black with a little room at the top.