(FORTUNE Magazine) – Angry shareholders. Aggressive regulators. Onerous record-keeping requirements. As thousands of small firms face the new realities of life as a public company, many are saying, "Who needs it?!"

"There are certainly a lot of things to make you reflect about whether you want to be public," says Jeffrey Webb, CEO of Varsity Brands, a publicly traded company based in Memphis that produces uniforms and accessories for cheerleading and dance teams. That reflection has led to a radical decision for Webb. He and other members of senior management are attempting to buy Varsity for $131 million. And Varsity is hardly the only company that's had it with life in the public eye.

The largest "going private" transaction so far this year involves Quintiles, the pharmaceuticals-testing company. Company founder Dennis Gillings had become fed up with analysts' focus on quarterly earnings and their failure to grasp that his long-term growth strategy requires the company to make expensive investments today. So, with help from Bank One's private-equity arm, he's taking Quintiles private for $1.7 billion. In the past year several dozen companies--including health-supplements maker Herbalife and trucking company Landair--have done the same. While the number of going-private transactions has remained fairly constant over the past two years, U.S. Bancorp Piper Jaffray fund manager Dan Donoghue expects the trend to accelerate in the next 12 months. Not that going private is simple: Companies must have predictable cash flow and growth potential, and offer existing shareholders as much as a 40% premium over market value, says Donoghue.

Companies have always disappeared from public markets during downturns, but unlike previous privatization movements, this trend is being driven as much by the unintended consequences of regulatory reform as by market conditions.

Remember Sarbanes-Oxley? The 2002 act designed to safeguard shareholders against corporate malfeasance can mean $1 million a year in additional auditing and legal fees and other costs, says John Egan, a lawyer with McDermott Will & Emery in Boston. "A lot of public companies were public in name only," Egan says. A majority of their shareholders and board members were insiders or had a business relationship with the company. Now these firms must find three independent directors qualified to serve on an audit committee. That isn't easy or cheap, since the companies then have to buy insurance to indemnify the new directors against potential liability. Premiums for this insurance have doubled in some cases.

The recent settlement between Wall Street banks and New York attorney general Eliot Spitzer, the SEC, and other regulators is yet another blow to the small fry. Regulators' efforts to separate stock research from investment banking have led Wall Street firms to slash analyst coverage of small-cap stocks. (Without the promise of lucrative banking fees, small companies don't generate enough trading volume to make them worth covering.) Thousands of stocks with a market value of less than $300 million have fewer than two analysts following their company. "Every company with a market value of less than $200 million should at least review why it is public," says T.L. Stebbins, a managing director at the boutique Boston investment bank Adams Harkness & Hill.

Finally, an increasing number of Nasdaq stock transactions are occurring over electronic communication networks, or ECNs, rather than broker to broker. That compresses trading spreads and makes it less profitable for brokerage firms to make a market in small-cap stocks, meaning that many small-cap shares are increasingly illiquid.

Given the high price companies are paying to be public these days, it's no surprise that IPOs have slowed too. From January through March of this year there were only four, the lowest quarterly figure since 1975. Perhaps that's not such a bad thing. John Dwight, a CEO who spent 22 years building PCD Inc., a Massachusetts maker of semiconductor components, was recently forced to sell the bankrupt company. In hindsight Dwight says he wishes PCD had never been tempted by an IPO. "If we hadn't gone public, we wouldn't be great, but we'd be okay."

As a growing number of companies come to that realization, expect to see a good number attempt to go private--before they suffer the same fate as PCD.

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