IF FAILURE IS A

public spectacle, success has never been a more private affair. At least, that's the case for an increasing number of publicly listed companies that are turning to privatization to avoid the unsettling and sometimes distracting glare that goes with reporting quarterly results and operating in a more stringent regulatory environment.

A pair of announcements this week underscored the growing enthusiasm for getting off the Big Board. Appliance maker Maytag, which last month agreed to a buyout by Ripplewood Holdings, a private-equity firm that valued the company at $1.1 billion, or $14 a share, received a competing bid on Monday from Chinese appliance maker Haier Group and powerhouse buyout firms Blackstone Group and Bain Capital. The consortium offered nearly $1.3 billion, or $16 a share. The same day, the Dolan family, founders of Cablevision, proposed taking the lagging cable operations private in a $7.9 billion deal that would pay $21 a share cash, plus $12.50 worth of stock in a spinoff company to be called Rainbow Media.

The headlines don't tell the whole story. While it's not quite an exodus from the New York Stock Exchange and the Nasdaq, the number of public companies choosing to withdraw from public markets and opt for private ownership is growing, thanks to a combination of deep-pocketed private equity investors that must invest their huge piles of capital and a new regulatory background critics assail as a costly and distracting. Private equity firms have raised $59 billion in new funds in the first half of this year, and have $100 billion unspent from last year. Combined with concerns over more stringent auditing and accounting procedures needed to comply with 2002's Sarbanes-Oxley legislation, which can add $1 million or more to a typical company's operating costs, conditions may prompt management to leave ticker symbols behind.

"When you look at the number of publicly traded companies, it's really dropped dramatically since 2000," says Josh Lerner, a professor of investment banking at the Harvard Business School. "That's partly due to the craze of the dot-coms selling dog food over the Internet and going belly up, but it's also that many companies have made a decision to go private. A significant number of companies have decided that the hassles of being a small public company aren't worth it."

The lure of privacy has already prompted retailers as diverse as Neiman-Marcus, the suave seller of designer silk separates, and Toys 'R' Us (, the mass-market seller of Barbies and Bayblades, to leave the public markets, with a boost from multibillion-dollar buyout firms. Toys 'R' Us, which had lost ground to rival Wal-Mart Stores and racked up mounting losses, was bought out in March by private-equity shops Bain Capital Partners and Kohlberg Kravis Roberts, which joined real-estate developer Vornado Realty Trust in a $6.6 billion deal some observers call a play for its land rather than its retail operations. The company reported a first-quarter loss of $41 million, worse than the $28 million loss a year earlier. The buyout shops Warburg Pincus and Texas Pacific Group bought Neiman Marcus for $5.1 billion earlier this year. In March, SunGard Data Systems agreed to be acquired by a group of private-equity firms comprised of heavyweights Silver Lake Partners, Bain, Blackstone, KKR, Texas Pacific, Goldman Sachs Capital Partners and Providence Equity Partners in an $11.3 billion deal.

"There's no question we're seeing a fairly big boom on the privatization side," says Erik Hirsch, chief investment officer of Hamilton Lane, an asset-management firm that advises and creates private-equity portfolios for institutional investors such as pension funds. "I think, as far as Sarbanes-Oxley, the market now needs to deal with it. It's a maturation process and it will eventually shake itself out. In the meantime, I think it's going to drive a lot of smaller companies into the arms of private-equity firms."

According to data from R.W. Baird & Co., 30 public companies have announced plans to go private since Jan. 1, nearly double the 18 that went private in all of 2004. Steven Bernard, director of mergers-and-acquisitions market analysis at the Milwaukee investment and private-equity firm, says the key statistic is the average size of each deal, which has tripled since last year, when each take-private transaction was valued at about $396 million, for a total value of $7.3 billion. Through June 1, the average move to the private sector was a $1.3 billion deal, and the total volume is already at $39.9 billion, he says.

While Sarbanes-Oxley regulations are commonly cited as the primary impetus for these delistings, reality is made a bit more complex by the expanding role of private-equity investors. As such, it's tougher for small investors to play the wave of privatizations, which some market observers believe will only gain momentum.

"America is going through, and will continue to go through, a wave of business restructurings," says David Snow, U.S. editor of Private Equity International, a monthly trade journal that tracks private-equity investments.

That's due in large part to the growth of the deal-hungry buyout industry, which now has between $80 billion and $120 billion to invest. With its pools of capital filled to historic levels, private-equity investors have changed the way they do business. They're now taking an increasingly hands-on approach that may make its overtures more attractive to the boards of smaller companies that could be languishing on the stock market.

Private investors tend to take one of two routes as company owners. There are financial buyers, who generally infuse a company with capital and maybe make some management changes before selling it again or relisting it. Strategic buyers, often rival businesses with private-equity backing, may roll a few similar businesses together to form a larger company, using their deep pockets to make bolt-on acquisitions. They can also streamline a company by selling off subsidiary businesses. Companies are owned for a few years and disgorged from a buyout shop portfolio, though it's common for those firms to retain significant ownership stakes.

Snow, the editor, says that's changing. He points to increased hiring of executives with significant industry experience. "Private-equity firms are gearing themselves up to be transformers of businesses," he says. "It used to be, in the roaring '90s, firms, especially venture-capital firms, could just buy low and sell high. Now it's not surprising to see private-equity firms, which have been raising more money and adding resources and capabilities, popping up in industries like cable TV to play a role in really transforming them. And, make no mistake, making a handsome profit in the process."

Bernard, of R.W. Baird, says the era of buying a company for four times its annual earnings before interest, taxes, depreciation and amortization, or Ebitda, then selling it for six times a couple of years later is over. "Buyout firms are becoming much more active, and in a turnaround situation, it may be an investment of longer duration," he says.

With an eager and growing buying constituency that offers an alternative to mergers with publicly listed rivals, more companies may take the option, particularly as listed companies must now conform to Sarbanes-Oxley rules that opponents say add time and take away money. Academic experts say definitive figures are hard to come by, but the tab for more rigorous outside accounting and auditing can easily top $1 million annually.

"Many of these outside accounting companies have fairly onerous requirements," says Harvard's Lerner. "Many boards are looking at the cost and benefits of public ownership and saying that the benefits aren't enough, and it simply doesn't make sense to be a public company."

Ron King, a professor of accounting at Washington University in St. Louis, says it might be easier for a privately owned company to grow, away from the pressures of reporting quarterly earnings and placating shareholders who demand speedier results. Comparing the 50 largest public companies in the St. Louis area with their 50 largest private counterparts, he notes that the final entries on the private list have revenues three times those of their publicly traded counterparts.

So how can the average investor play the curtain calls as companies leave the public stage? Regrettably, there's no simple answer.

Paul Chaney, a professor at the Owen Graduate School of Management at Vanderbilt University, says expectations of a sudden flight to the private side weren't met after the law passed. "Initially when [Sarbanes-Oxley] came out, people were trying to make predictions about which firms would try to go private. The initial thinking was that these would be the firms that had the most to hide."

Although he believes Sarbanes-Oxley hasn't really altered or improved corporate governance, except to make it more expensive, the law didn't drive sketchy companies out of the public eye. "Certain smaller firms, I think, could make a case that given the costs for complying with Sarbanes-Oxley, maybe it is in the best interest of the owners to take the firm private, and certainly, I can't argue with that logic."

So it's still tough to predict which companies might go private usually with a healthy premium for their shareholders. Washington University's King says telecommunications companies might make a short list, because of "conflicts between strong owners and very ambiguous accounting." R.W. Baird's Bernard says mature businesses in industries burdened by excess capacity, such as auto-parts makers, might make for ripe plucking.

"We're not seeing grandiose conglomerate building," he says of buyout firms' plans and general merger activity. "What we're seeing is vertical consolidation to get economies of scale." In the public markets, the February merger of trucking firms Yellow Roadway and USF is an example of smaller companies joining forces to grow.

Lerner says buyout targets were once typically old-line manufacturers, but that has changed with the commensurate diversification of the private-equity industry, which now has expertise far beyond leveraging capital and figuring out which factories to close. "There's a broader range of companies involved in being targets of private-equity firms, and it's much less clear that there's one target industry."

One thing to watch for could be companies that have seen their stock prices slide over time and simply fall out of favor with the market. Management may be looking to circle the wagons after public pummelings, says Hamilton Lane's Hirsch.

"Whether it's increased scrutiny or frankly increased money having to be spent, I don't think it's a question of people not wanting to run their businesses in the proper way. They're being forced to make short-term decisions for the health of the public market," he says. "Private equity is not interested in short-term stock movement or quarterly results. They can say to management, 'Sit back and drive value for five to seven years.' I don't think they care if they have a down quarter or something like that. I don't think the public markets are quite that forgiving."