Study: Private Firms Outpacing Publicly Traded Companies in Sales, Profits

By Libby BiermanFOXBusiness

Sometimes it pays to be private.

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In an analysis of financial-statement information from 2010 to 2014, Sageworks found that large, privately held companies in the United States are outpacing their publicly traded counterparts in two key performance metrics: sales growth and profitability.

Private companies with annual revenues greater than $500 million have grown sales at a much faster rate than public companies in the period since the recession, a time when most U.S. companies were recovering from flat or declining sales.

“There’s a misconception that ‘private’ means ‘small,’ ” said Sageworks Chairman Brian Hamilton. “In reality, private companies come in different shapes, sizes, varieties, and revenue figures. A lot of them have chosen to remain private, despite many opportunities to do otherwise.”

Hamilton added that some companies realized they preferred being private after many years on public exchanges.

“Consider the example of Michael Dell,” said Hamilton. “Here was an entrepreneur who understood the benefits of operating a company outside of the day-to-day scrutiny and volatility of the markets.”

Additionally, this segment of private companies is currently seeing healthier net profit margins than the average public company. It can be easy to dismiss this margin performance and revenue growth as just a “perk of being small,” but that argument isn’t as strong with this sub-section of privately held companies, which are probably more akin to public companies in way of operations and staffing than small businesses.

In the most recent period, the trailing 12 months ended August 14, 2014, large privately held companies grew sales at nearly 11% over the previous year and earned net profit margins at an average of 8.6%. Large, private companies are growing sales at a pace that is 8 percentage points higher than publicly traded firms, and these extra 8 percentage points mean a lot to the owners of those private companies and to their ability to reinvest for further growth.

“Being private allows you to cut through the noise, and focus on what matters,” said Hamilton. “That is, growing your business.”

For this particular release, data on publicly traded companies was pulled in via a third party source (Thomson Reuters).  Additionally, each subset of companies (private and public) in this dataset includes companies from most major industries, such as construction, retail, wholesale and manufacturing. However, the industry breakdown for each subset is not identical.  The impact of any industry differences in the two datasets have neither been determined nor factored into this analysis. 

Libby Bierman is an analyst at Sageworks, a financial information company and Inc. 500 honoree that provides risk-management solutions to financial institutions and financial analysis and benchmarking applications to accounting firms and private companies. Sageworks data and applications are used by thousands of accounting firms and financial institutions across North America and internationally.