More and more small- and mid-cap companies are looking to exit the public markets and the trend is likely to persist, according to a recently released Piper Jaffray M&A report. The report titled, "Mergers and Acquisitions Insights: Going-Private and Public Take-Out Transactions," analyzes activity in the marketplace for large-, mid- and small-cap companies exiting the public markets.

In total, the number of companies exiting the public markets as stand-alone entities by either selling to strategic buyers or private equity groups in all-cash transactions increased 73 percent from 2005 to 2006, after increasing 34 percent from 2004 to 2005. More specifically, small-cap companies showed the most activity in going-private and public take-out transactions from 2004 to 2006 with 52 additional transactions compared to 41 mid-cap and 43 large-cap transactions.

The reason according to Piper Jaffray, is that small-cap companies, in particular, realize fewer benefits from remaining public than companies with larger market capitalizations. In addition, the M&A environment remains vibrant for companies across all market capitalizations, including small-cap companies.

"While excellent opportunities exist for any public company to consider a going-private or public take-out transaction, the motivations are even stronger for many small- and mid-cap companies," said Robert Frost, managing director in investment banking at Piper Jaffray. "As a result, an increasing number of small- and mid-cap companies are considering a sale transaction."

Public companies have both internal and external market-driven motivations for pursuing going-private and public take-out transactions. Specifically, small- and mid-cap companies have many unique reasons for considering such transactions. Those motivations include:

- Impact from Sarbanes-Oxley regulation and public company costs.

- Less research coverage, lower trading volume and liquidity and limited access to capital markets for growth capital.

- Valuation discrepancy relative to larger companies.