Four small-cap IPOs launched into choppy markets
For an investor relations officer, an initial public offering is like New Year's Eve, Mardi Gras, and St. Patrick's Day all rolled into one - only with the potential for a bigger hangover. While there's plenty of money to be made - Ernst & Young reports that IPOs have netted over $400 bn since 1970 - IROs have to earn every penny.
That's because going public is a chaotic, wild, frenzied ride that promises to test the most battle-hardened IRO. And it's a ride that has only grown more frenetic in 2001, as companies looking to go public must compete for scarce investment dollars. 'It's not the number of IPOs these days, it's the quality of the companies - and the quality of the people working for those companies - that make the difference in a successful IPO,' says Bill Sherman, an analyst at Thomson Financial/Carson. 'But if you haven't undergone a baptism of fire, you really won't know what the IPO process is like.'
That said, there's no reason you can't learn from other IPO-hardened IROs. Here is what some of them have to say.
Do it yourself
Image Technology Laboratories (ITL) is a small business, the kind where each employee wears several hats. But one employee at the Kingston, New York-based medical diagnostic image software developer really went beyond the call of duty by offering to shepherd the company's recent IPO to completion all by herself. No investment banks. No army of lawyers. No parade of PR pros.
'The company was started when current president - and my husband - Dave Ryon ran out of space at his radiology center,' explains Valerie McDowell, investor relations officer at ITL. 'The old view box was cumbersome and the diagnostic image error rate was way too high.' Working day and night, Ryon collaborated with a software engineer from IBM to build a digitized x-ray interface that scanned images onto computers. 'Now radiologists can read multiple x-rays at one time in a fast and dependable fashion,' says McDowell.
With hospitals and medical clinics lining up for the imaging software, McDowell went out to line up more cash to expand the company. Venture capitalists wanted too much of the pie and the banks were cautious after the dot-com explosion. That left an IPO as the best option, but one with a twist. 'I had been a trader on Wall Street and figured out we could pull together an IPO ourselves,' explains McDowell. 'I had contacts in the investment banking industry, I knew underwriting groups and private investors. And some of our other employees knew people, too. It was like having pieces of the puzzle that had to be put together.'
Rolling out her IPO plans in October 1999, McDowell hired a law firm and told them to structure the IPO so the company would have a warrant or unit deal to fall back on in case the offering failed or revenues weren't strong. 'Excluding our hardware we had a budget for the whole IPO of about $40,000,' she adds. 'We paid the accountants and lawyers first but never wound up using any outside investor relations consultants. I handled all the work an IRO would do, like communicating with investors, the SEC and analysts. We did, however, spend some money on conferences and roadshows. It was definitely a mom-and-pop affair.'
Within a year McDowell had an agreement with the SEC that enabled ITL to offer investors one share at 30 cents and one warrant at 40 cents. Altogether, 2,591,000 units were on the table, ultimately raising $1.35 mn. The company went public on October 15, 2000.
'We all learned so much from the experience,' she says. 'But if I had to do it all over again I'd be more patient with the regulators and the lawyers, and I'd be more diligent checking details.' McDowell ran herself ragged checking and rechecking warrant language, handling the printing and filing of critical documents, and Edgar-izing certificates for compliance. 'We're thinking of a second round of financing and I would definitely consider outsourcing the administrative work, if nothing else,' she offers. 'That way I could spend more time planning the big picture. But I wouldn't change much. And I wouldn't trade the experience, either. It was well worth doing ourselves.'
Silver lining
While the IPO market during the past year hasn't been ideal - indeed there have been more withdrawals of US-based IPOs than successful public offerings - a few companies have given confidence to the rest. In the second quarter of 2001, healthcare-related IPOs displaced oil and energy companies as the biggest first-day gainers. Selected Medical Corporation and Dr Reddy's Laboratories had the first and third largest first-day gains respectively, according to Hoover's Online.
Fourth was Dallas, Texas-based United Surgical Partners, which owns and operates surgery centers and private surgical hospitals in the US, Spain and the UK. The company had originally filed to sell 7.15 mn shares, and then raised the number to 9 mn. The stock opened on June 7 at $14 and soon rose to $24, up 71 percent. At the time of press, the company continues to trade around $25.
'Basically, we were funded by venture capitalists - Welsh Carson Anderson & Stowe. The end of most private investments is some form of liquidity, and in our case going public was the obvious choice,' explains United Surgical's CFO, Mark Kopser.
Kopser says one of the reasons the IPO was such a success was its team of underwriters, led by Credit Suisse First Boston and including Lehman Brothers and SG Cowen. 'I think the key is picking underwriters that understand your company and your industry. That's much more important than anything else. You have to be with a team that understands you, and can deliver the buyers that are focused on your industry,' Kopser advises.
The company's CEO, Don Steen, had worked with the underwriting team previously when they brought surgical-center operator Medical Care International public a decade ago. Medical Care had also worked with Nashville, Tennessee-based IR firm Corporate Communications, so it was a natural progression for United Surgical to do the same.
Rick Sirchio, United Surgical's treasurer and vice president of IR, began collaborating with Corporate Communications around the beginning of 2000. With 20 percent of the firm's clients in the healthcare sector, it helped Sirchio prepare the issuer's two-and-a-half week roadshow around the US and parts of Europe. 'Rick is the point person for the investment community when they call in with questions,' says Corporate Communications president Eddie Jones. 'When we find people who are interested in the company and they do follow-up calls, they'll call him.'
Kopser says now that the company is publicly traded, the goal is to grow its investor base. How? 'Through assistance from the underwriters and our corporate communications firm. They continue to bring us new leads that we follow up on,' he summarizes.
Fresh from the oven
It's hard to talk about AFC Enterprises without thinking how hungry you are. The company operates and franchises more than 3,630 restaurants, bakeries and cafes in 28 countries under the brand names Church's Chicken, Popeyes Chicken & Biscuits, Cinnabon, Seattle's Best Coffee and Torrefazione Italia. Last year AFC had system-wide sales of approximately $2.4 bn. And, on March 2, 2001, the company launched an initial public offering that opened at $19.50 and rose 30 percent in the ensuing 30 days.
Tons of talent went into planning AFC's IPO, reports CFO Gerald Wilkins, although being in the right place at the right time didn't hurt either. 'We had three extremely involved and talented groups of people from finance, communications and the office of general counsel who are familiar with the IPO process particularly after preparing for AFC's public equity debut for some time,' says Wilkins. 'The decision was made to combine the knowledge and skills from each of the disciplines to create a three-pronged investor relations committee to manage all activities regarding this critical area.' Wilkins adds that, even after the IPO launch, the team still meets on a weekly - and sometimes daily - basis, updating one another on IR initiatives. All members of the IRO team report to Wilkins.
In planning for the IPO, AFC also relied on outside consultants like Thomson Financial/Carson to provide strategic counsel for roadshow preparation and presentation, implement an employee-education campaign to teach staffers about life as a public company, and help court sell-side analysts, among other services. A legal firm was hired to help create a disclosure policy and act as 'war room' personnel as legal points arose during the IPO process. 'All these relationships are still retained today,' adds Wilkins.
The day of the IPO launch saw AFC turn to the commodity it knows best to influence media coverage. 'We did not conduct one-on-one interviews on the day of listing but did have a B-roll tape readily available and we delivered cinnamon rolls and Popeyes chicken to the major financial news media,' says Wilkins. 'To the media, that led to strong talking points throughout the day, and helped our stock's stellar performance [up 20 percent] in its first day of trading.'
Indeed, a check of some media reports from early March reveal not only news of the company's price movement but also comments on the food delivered to journalists. 'And then, of course, these Cinnabons that everybody's been showing... We saw five IPOs pulled this week, so this one did very well,' said Patrick Bolland on CNBC. 'Maybe more will come to the marketplace.' Dow Jones, Red Herring, Reuters and CBS Marketwatch had similar comments.
While 'flawless' execution was critical to AFC's IPO success in a stagnant IPO environment, Wilkins says some luck was involved, too. 'We went public when the dot-coms were down and out, which helped us enormously as investors were hungry to put their money in a company with proven, consistent, solid earnings growth.'
IPO journey
At Dublin, Ireland-based Datalex, traveling in global circles comes with the territory. The e-business software provider counts Orbitz, Aer Lingus, Air Canada, American Airlines, Amtrak, British Airways, Lufthansa and Qantas, among others, as clients.
Financially, the news has been good for Datalex. The company launched a successful IPO on Nasdaq and the Irish Stock Exchange in the third quarter of 2000, raising $66 mn. In 2000, total revenues increased 176 percent to $9.9 mn, up from $3.6 mn in 1999.
'The very fact that we completed a successful IPO in a challenging climate says a great deal about Datalex's strength in the marketplace,' explains Liam Booth, company finance director. 'We are well-positioned to take advantage of our current opportunities and with the infusion of cash from our IPO, we are dedicated to enhancing our strong global positioning.'
Still, for a company with big aspirations but a small staff, going public was a challenge. 'Our IR department was typical of a small company,' says Booth. 'It was just myself, our group controller Ciaran McNally, and one staff member, Hugh Murphy.'
Booth did hire an outside consultant, London-based Financial Dynamics, as well as London's Slattery Public Relations to advise on both IR and PR activities. 'Still, we spent only $200,000 on our IPO, which was a reasonable price for the success we had.'
With the IPO team reporting to Booth, Datalex kept everyone busy selling the company to investors at home and abroad. 'You have to have a strong IR platform and you have to sell yourselves right up to the launch date,' advises Booth. 'I think one of our strongest points was that we were able to give analysts a story - and a company - they could believe in.'
His one regret? 'That's easy. I wish we could have gone out in a bull market.'