The Deltek - Term Paper Example

1-What was the driving force for Deltek going public in the first place? Was there merit in this logic?

The driving force for Deltek going public was that scores of its employees had been given stock options in the company and they could not make them tangible were the company to remain private (Johnston 3). Going public would offer employees the opportunity to trade their stock options for cash. Use of stock options allows growing private companies to reward their staff while conserving their precious cash. The private company is able to conserve its cash reserves by substituting some quantity of cash compensation with the upside potential of the stock value. However, employees in the private company have limited options with regards to vesting their options especially while they are still employed there. Within the private enterprise there is really no way of knowing the fair market value for one’s stock options. Going public offers a better market for employees to exercise their stock options. Therefore, from the employee perspective, Deltek’s reason for going public was merited.

2-What advantages did Deltek find in going public once it became a public company? What disadvantages did it face?

In going public, Deltek’s experienced two major benefits: increase in brand equity that came with all the attention it received as a public image and extra cash from the sale of stock which have it the resources to make important acquisitions. However, from the case, it seems that the company experience greater disadvantages than advantages on becoming a public company. The biggest disadvantage was the obsession with the stock price. Everything in the company now revolved around the stock price and this focus shifted the company’s attention away from the more important long-term goals (Johnston 4). This was especially dangerous given that it directly has an effect on the company’s ability to survive in future. Secondly, lots of company resources were less productively used in meeting the requirements of public companies such as the quarterly reporting which consumed much of the Chief Financial Officer’s time and the CEO and other executives having to constantly meet with analysts to explain Deltek’s business.

3-What distinguishes Deltek from the dot-com companies that rushed to go public? Why did those companies go public? Who gained?

The three major differences between Deltek and other dot-com companies that rushed to go public were that: (1) it had a single investor – who was the founder; (2) the founder was not eager to sell his stake; and (3) Deltek was already a profitable company. The other dot-com companies went public largely for three reasons. Firstly it was to raise money to fund growth irrespective of whether they were currently profitable or not. Secondly, these companies went public to gain the visibility or prestige offered by being a publicly traded stock. Thirdly, these dot-coms went public in order to cash in on the inflated prices that others were willing to pay for tech start-ups at the time.

The people who gained from the dot-com IPOs were mostly the venture capital investors, the founders and employees who had stock options within those tech start-ups. These individuals cashed in on the high IPO prices whereas the new investors were left to face the dot-com bubble burst a few years later. For Deltek, both the founder and employees who had stock options gained from the initial IPO prices, however their work-life balance was adversely affected by the demand placed on them by their new public status.

4-Why did Deltek decide to leave the public arena and become a closely held corporation once again? Do you think its management made the right decision?

Deltek decided to leave the public arena for three main reasons: (1) to focus on its long-term goals; (2) to avoid being second-guessed by the fits and starts of a volatile stock market; and (3) to regain the work-life balance that was taken away by going public. Deltek’s management made the right decision with regards to reverting to a privately held corporation for the reasons that shall be discussed below. Firstly, businesses aim to survive, grow and remain profitable over the longest time possible. To achieve this they have to put in place and work towards realizing their long-term goals. The obsession with stock price was preventing Deltek from focusing on its long-term goals. This could have had a devastating effect on the company’s survival were it to continue being distracted by the stock price.  Secondly, the underlying factor that drove Deltek to go public was its desire to motivate its staff by giving them a way to exercise their staff options. However, as Herzberg’s two factor theory states money is a hygiene factor which decreases job dissatisfaction but does not increase job satisfaction. The increased demands of working in a public company and being second-guessed by the fits and starts of a volatile stock market were having an adverse effect on the intrinsic conditions of the job at Deltek. As such, in as much as the employees were now able to exercise their stock options, the nature of work at a public company was reducing job satisfaction.  We are informed of how work-life balance improved at Deltek after it reverted back to being a private corporation.