Companies Weigh Benefits Of Public vs. Private Status

The Region’s Largest Private Companies

Click here for the list of Northwest Arkansas’ largest private companies.(Lists require Adobe Acrobat viewer. Click here for a free copy.)

Of the 22 public companies based in Arkansas, only four call the Fort Smith area home.

That number is down from six since 2000, if Superior Bank’s Fort Smith charter is factored in and not the holding company, which was based in Little Rock. The number could dwindle even further later this summer when details about the purchaser of Beverly Enterprises Inc. of Fort Smith are announced.

William Floyd, president, chairman and CEO of Beverly, said mid-August was a “realistic” time frame for the buyer’s announcement, but citing legal regulations, Floyd could not say if the interested bidders were public or private entities.

“I’d like to discuss it with you, but I’d like to stay out of jail,” he joked.

If Beverly loses its Arkansas-based public company status, which is likely, only Arkansas Best Corp., Baldor Electric Co. and USA Truck Inc. will remain in the Fort Smith area.

Year-over-year quarterly earnings growth for each of the Fort Smith area’s companies is up — sharply for the transportation firms — with the exception of Beverly, which posted a negative 37.5 percent.

The River Valley’s public company issues are somewhat reflective of a national trend, said Scott Davis, executive vice president of institutional equity sales with Stephens Inc.

The additional cost of doing business and the increased scrutiny public companies are under since the passage of the Sarbanes-Oxley Act of 2002 has put a damper on smaller companies’ earnings, while investors demand as much or better performance.

Designed to thwart accounting abuses that made Enron and WorldCom infamous, SOX requires management of public companies to include an internal control for financial reporting in their annual report, which means more billing time from their accounting firms.

America’s Car-Mart Inc. of Bentonville, for example, recently reported that its income had decreased by 7 percent from last year’s comparable quarter because it had a $700,000 cost related to compliance.

“You have to comply whether you’re large or small and the cost [of compliance] is significant,” Davis said.

Floyd echoes that the cost of SOX is steep, but he said the growing trend of investors seeking short-term gains at the expense of long-term strategy is an even greater hindrance to any public company’s growth. He said Beverly’s short-term stock ownership changed dramatically from 5 percent in December to 40 percent in March as investors looking for a quick shot in the arm picked up the company’s certificates.

But on the flip side, Floyd said there are definite benefits to running a private company. It can be managed easier for the long term without fear of missing quarterly earnings. A public company often has to be creative with divesting nonperforming assets, he said. That could include strategically downsizing facilities so the company won’t take a ding in any one quarter, which might negatively affect stock price. A private company can be more decisive and cut ties with a bad apple when it wants, he said.

The state lost two public companies last year — Cytomedix Inc. relocated to Rockville, Md., and HCB Bancshares Inc. of Camden was purchased by a private company. And on July 13, ValueAct Capital Partners LP of San Francisco proposed buying controlling interest of Acxiom Corp. of Little Rock.

Superior to Arvest

John Womack, president of Arvest Bank-Fort Smith, was a point man in Arvest Holding’s $212 million acquisition of Superior Bank.

He was hired by Arvest to head up the bank’s operations in Fort Smith in 1999. Womack started the Arvest brand there with a loan production office, and that eventually grew to be six bank offices with about $120 million in assets before the 2003 merger.

Once the transaction was complete, in December of 2003, there were about 20 banks in the fold with about $560 million in assets, he said.

Statewide, Arvest acquired 190 branches and $6.65 billion in assets from Superior.

The deal closed in August, but Superior ran as a separate bank until December. During that time, he had to toe the line with what he could say to Superior employees due to SEC regulations.

Scott Grigsby, senior vice president and regional president for Arvest Bank Group Inc., said as far as the nuts and bolts of the transaction was concerned, he couldn’t comment due to confidentiality agreements.

Stephens’ Davis said the Superior/ Arvest deal wasn’t really a result of the SOX compliance cost (that’s just starting to show in company’s earnings) nor was it the result of short-term gain seekers. It was more just a natural progression of the banking industry, he said.

Takin’ it to the Street

So if the cost of compliance is getting out of hand and Wall Street wants to flip stocks, why would companies consider going public?

John Allison, chairman of Home Bancshares Inc. of Conway, said his vision is to have an initial public offering of his company sometime next year.

Home Bancshares has $1 billion in assets and is the holding company for Community Bank of Cabot, First State Bank of Conway and Twin City Bank of Little Rock.

Allison said the obvious reason for an IPO is to have access to more capital, but another major factor is so that shareholders will have a marketplace to buy and sell their stock if and when they want to.

As far as SOX compliance goes, Allison said banks are typically ahead of the game as public companies because they’re already scrutinized and regulated by a number of agencies.

He said it will probably cost his company an additional $500,000 a year in accounting and compliance fees, but it will be worth it.

Home Bancshares bought a 20 percent stake in Fayetteville’s Signature Bank of Arkansas, but an IPO won’t affect the startup.

Gary Head, chairman of Signature, said his long-term goal will be to take the bank public, and he hopes to learn the ins and outs from Allison during the next few years.