What I Do In Private Is My Own Business

Why some of America's best private companies have chosen to ignore this year's hot stock market and decided to keep their companies to themselves.

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GOING PUBLIC. IN SOME CIRCLES, IT is considered the ultimate rite of passage for any company, the entry as a legitimate member in the nation's most exclusive business community. Companies that don't trade on Wall Street -- or ones that don't plan to -- exist in the dim netherworld of the national business consciousness, undiscussed and unheralded or even dismissed.

Earlier this year, with the market for initial public offerings as hot as it had been in three years, the pressure to take a company public and cash in for millions was all the more intense. In the first nine months of 1986, more than 400 companies opted to play under Wall Street's glaring lights, netting $12 billion for company owners, investors, and their minions of investment bankers. By now, you've probably read at least one of the accounts of Bill Gates's score with Microsoft Corp.'s offering or heard the fantastic story of Home Shopping Network, which jumped from 18 to 42 2/3 on its first day of trading. It's unlikely, however, that you've ever heard of Warren Braun or ComSonics Inc., which is precisely the way Braun prefers it.

"The problem is that people mistake Wall Street for business. You end up putting all the focus on impressing the folks in New York with short-term earnings," says Braun, chairman and chief executive officer of a $7-million cable-television equipment and service company in Harrisonburg, Va. "A private firm can focus on the more crucial things, like maximizing long-term growth and profits."

These are not just penny-ante companies that are choosing to stay private. Many have respectable sales, healthy profits, and histories of steady growth in attractive industries -- just the sort of firms that make investment bankers salivate.

"We're hit up all the time, at conventions mostly, with propositions from investment bankers and business consultants," says Carlton Cadwell, president of Cadwell Laboratories Inc., a medical-electronics firm in Kennewick, Wash. "But I don't need them. To me, it would be like selling my soul. Having investment bankers on my board doesn't turn me on."

It's not hard to figure out why investment bankers swarm around Cadwell's convention booth. Since its founding late in 1979 by Cadwell and his brother John, a physician and medical researcher, the company has established itself as a world leader in electronic devices that measure various brain functions. With sales now well over $10 million, Cadwell Laboratories has been growing at nearly 40% annually and has never had a year without a profit. Staying private, he figures, is the best way to continue the trend.

"The disadvantage to us, if we go public, is that we would no longer be primarily accountable to our customers and our products," says the 42-year-old dentist. "You become prisoner to a quick-hit mentality. I'm a long-term-planning kind of person."

Last year, for instance, Cadwell siphoned much of its double-digit profit margins to finance the yearlong development of a revolutionary new machine that evaluates brain functions. Using novel software developed jointly with New York University Medical Center researchers, the Cadwell Spectrum 32 can track brain-wave patterns that aid psychiatrists in diagnosing and monitoring treatments for such disorders as alcoholism and depression. Now, instead of selling his machines only to the nation's 8,000 neurologists, Cadwell has a big, new market: 30,000 psychiatrists.

"The Spectrum 32, I'm convinced, will be our leading revenue producer in a year," Cadwell predicts. "But would they -- the stockholders, the investment bankers -- have sacrificed much of last year's profit for this? I doubt it. I guess it boils down to the fact that these high-rolling types just aren't my kind of people."

Kenneth George, on the other hand, makes his living off high rollers. Still, as president of Birr, Wilson, a small brokerage and investment-banking firm in San Francisco, George has turned down numerous offers from other investment banks to merge or go public. Instead, he prefers the ambience of a comfortable regional firm that affords him and his 170 brokers the luxury of concentrating on providing quality service to local clients. George watches the public markets for a living, and he shudders at what their relentless need for ever-greater profits would do to his own firm.

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