Posts Tagged ‘IPOs’

‘That’s not a strategy’

August 31, 2016

Henry_R._Kravis_verticalHenry R. Kravis, co-chair of KKR, in the July/August Bloomberg Markets, on interviewing CEOs of potential investments:

I compare their responses to the dot-com period around 2000. Back then I’d ask, ‘What’s your strategy?’ and people would tell me, ‘Go public.’ I’d say, ‘That’s not a strategy-that’s a way to raise money.’ ‘It’s all eyeballs,’ they’d say. ‘OK, eyeballs,’ I’d say. ‘You’re looking at your screen: How are you going to turn those eyeballs into money?’ And of course all of those people went away.

The arrogance during that time was staggering. I can’t tell you how many people told George [Roberts, Kravis’s cousin and partner in KKR] and me, ‘You don’t get it …’

In explaining our companies’ strategies, investor relations officers – and CEOs – should be wary of two traps: (1) hubris and (2) mistaking a near-term payday for a real strategy to build a profitable business.

© 2016 Johnson Strategic Communications Inc.



Twitter IR could be interesting

November 8, 2013

TWTR NYSEA few years ago an investor relations colleague told me Twitter was “the end of the world as we know it.” Bothered by the cacophony of 140-character mini-messages, this Old Schooler was offended by the damage that tweeting could inflict on our language. To me, it looked interesting rather than scary.

And now Twitter, Inc., after a hugely successful IPO on Thursday that raised roughly $2 billion (which The New York Times DealBook blog sniffed was “more modest” than what the company might have gotten if pricing had been higher), is going to be even more interesting for IR people to watch.

The social media platform has begun life as a public company pledging to talk to investors through – well, social media. To be sure, there is a Twitter investor relations webpage, though I found the corporate site only after some searching. The IR page itself is worth checking out, a bit unconventional with its news from the company blog of mostly non-investor related happenings, a page of financial releases (“Coming soon” … like the earnings, a cynic would say) and, of course, a feed from @twitter.

But this will be worth following. In rolling out Twitter’s stock offering, management pledged to practice its own preaching – using online postings and social media (its own) to get the word out. From the TWTR prospectus:

Channels for Disclosure of Information

Investors, the media and others should note that, following the completion of this offering, we intend to announce material information to the public through filings with the Securities and Exchange Commission, or the SEC, our corporate blog at, the investor relations page on our website, press releases, public conference calls and webcasts. We also intend to announce information regarding us and our business, operating results, financial condition and other matters through Tweets on the following Twitter accounts: @dickc, @twitter and @twitterIR.

The information that is tweeted by the foregoing Twitter accounts could be deemed to be material information. As such, we encourage investors, the media and others to follow the Twitter accounts listed above and to review the information tweeted by such accounts.

Any updates to the list of Twitter accounts through which we will announce information will be posted on the investor relations page on our website.

That all seems to be in line with the SEC’s guidance on IR use of social media and company websites for disclosure (speaking as a non-lawyer). Twitter has the advantage of starting afresh – investors aren’t accustomed to seeing its news in one particular place or format.

Twitter fin releases

The end of the world? Hardly – but IROs will be watching with interest.

© 2013 Johnson Strategic Communications Inc.

And now, Twitter as a public company

November 7, 2013

TWTR tweet

Congratulations, FB, and good luck

May 17, 2012

Facebook pulled it off.

The New York Times “DealBook” site, May 17, 2012

A nice summary by NYT “DealBook” writers Evelyn Rusli and Peter Eavis. Facebook did pull off the IPO of the year, pricing at $38 a share for a total sale of $16 billion. The market initially valued the company at $104 billion.

Congratulations, FB!

There is a sense of relief, after the IPO with more media hype than any in recent memory, in seeing it priced and starting to trade. Following a few more days of craziness, no doubt, investors can settle down and begin looking at Facebook as they would view any other public company.

Here are a few bits of information for the curious investor relations pro:

Being public will impose a new sort of discipline on Facebook the company. Thinking about disclosure vs. trial balloons and leaks. Telling investors the basics like revenue and earnings. Meeting quarterly expectations or taking a beating. Perhaps a future day when hedge funds and analysts call for a new CEO.

I’m not going to second-guess the valuation, roughly 100 times trailing 12-month earnings. Or $115 for each of those ballyhooed 900 million users. Enough market gurus already are opining on FB, and people were willing to pay the $38.

Rather, I’m looking forward to watching the biggest social network as it grows and matures in the coming months and years. The “DealBook” writers comment:

The question is whether the company’s management will make it work.

Facebook, in many ways, is like a mining company sitting on valuable deposits that are hard to dig up and refine. At a market value of $104 billion, investors believe Facebook is sitting on gold. But the share price could tumble at any sign that Facebook’s management can’t unearth it.

© 2012 Johnson Strategic Communications Inc.

The public markets’ competitor

May 11, 2012

Q: Do you ever wish you were publicly traded?

A: Oh God, no. I have the greatest job in the world, because I work for a guy who runs the company for the next 20 years, not the next 90 days. It’s tough being a public company, and I wouldn’t wish that on anyone.

 –  Steve Feilmeier, executive VP & CFO
Koch Industries, Inc.

As investor relations people, we rub elbows mostly with publicly traded companies. We think about how to get our message out to the capital markets in competition with other public companies, especially our peers within narrow industry sectors.

But a whole other class of competitors exists in a parallel universe – competitors for capital and, in our businesses, for customers. Maybe we ought to pay attention.

What started me thinking was Steve Feilmeier, CFO of Koch Industries, who spoke this morning to the Kansas City chapter of Association for Corporate Growth. Known to outsiders mostly for media attention in political controversies, on the business side Koch is a $125 billion company with 67,000 employees – the No. 2 privately held business in America. No. 1 in profitability, Feilmeier hastens to add.

Right at the start, Feilmeier says being privately held is a competitive advantage:

We benefit from not having to report earnings every 90 days. All of our decisions are based on, How is this going to work out in the next 10 years?

And it’s working out just fine for Koch (sounds like “coke”). The firm is doubling revenue every five or six years with a dozen operating companies in agriculture, energy and manufacturing. Although Koch doesn’t report publicly, Feilmeier makes it clear those businesses are delivering even better growth in EBITDA (slides here).

An example of Koch’s presence: AngelSoft, its toilet tissue brand, is the No. 1 SKU in Walmart stores. No. 1. Feilmeier says 60 truckloads a day leave Koch’s Georgia-Pacific subsidiary loaded just with AngelSoft four-packs bound for Walmarts.

The ongoing shift in institutional investor preferences among asset classes is the other thing that got me thinking. I keep hearing about pension funds, endowments and real people putting more money into alternative investments – capital that isn’t flowing to publicly held companies represented by IR pros.

Consider these stats: In 2001 U.S. pension funds held 65% of assets in equities, but that dropped to 44% by 2011, according to the Towers Watson Global Pension Assets Study 2012. in those 10 years, the “Other” category in asset allocation – real estate, private equity and hedge funds – quintupled from 5% to 25%. Apply those changes to $16 trillion in U.S. pension assets and you’re talking real money.

Without getting in over my head further on macro views of the capital markets, my point is that public companies ought to think strategically about their investors. Institutions and individuals don’t have to invest in any particular public company. They might even flee the stock market, with some of their funds, for “alternatives.”

And this brings me back to Koch. Feilmeier’s description of why Koch keeps growing at the top line – and especially the bottom line – holds lessons that public companies and IR people might take to heart. A few interesting ideas:

  • Do investors see management-by-quarterly-numbers, or something like Koch’s “patient & disciplined” creation of wealth? How do we discuss performance?
  • Can we demonstrate how our incentive pay turns managers into entrepreneurs, who get paid when they deliver (and not when they don’t)?
  • Do we have real accountability? Koch doesn’t believe in subsidizing any of its businesses, so operating execs are responsible for balance sheets and P&Ls.
  • How do we make decisions? Koch demands rigorous comparison of every capital project with alternatives – will this investment deliver the best return?

Koch, of course, is a giant company. There are well-managed and poorly managed firms of every size in both the public and private arenas. But the principles Feilmeier discussed are common private-equity approaches to driving performance.

Private vs. public is a common debate among CEOs and finance folks. Some private companies long for public status – and a fortunate few make it through the IPO process to get listed. On the other hand some micro-cap and even mid-cap public companies wish they were private, to escape the hassles of quarterly reporting.

Whether public or private, maybe we need to get back to basics of running companies by rigorous disciplines of wealth creation. And public companies need to communicate how those disciplines create real shareholder value.

What do you think?

© 2012 Johnson Strategic Communications Inc.

Facebook IPO: Should we “Like” it?

February 5, 2012

Yes, I know, investor relations people should be thrilled to see life returning to the IPO market in 2012 – and here comes Facebook, the biggest Internet IPO of all, to stir up interest in public markets. But I’m wavering on whether to click “Like” or “Not-so-much.”

I can’t help feeling that all the hoopla around the social media giant’s pending public-company status may be a sign of a frothy top in the stock market. I hope not – and I do wish Facebook success in its IPO. It’s a wonderful growth story.

The stock market has had a good run recently, despite some nervous days. The S&P 500 is up 110% since about this time in 2009. The Nasdaq Composite has reached a level it hasn’t seen since 2000, not the top of the dot-com bubble but the time when prices were still deflating. And the market may keep rising for now.

Two things bother me a bit about the Facebook IPO:

Valuation. The prices being bantered about seem a little unhinged from reality. Andrew Bary’s commentary this weekend in Barron’s is interesting:

The best businesses can be poor investments, if you pay the wrong price. That’s worth considering as Facebook readies the most closely watched initial public offering in years—a deal that could value the seven-year-old company at $100 billion. …

Assume Facebook comes public at around $40, a slight premium to its private-market price. That would value the company at $92 billion, based on 2.3 billion shares outstanding. At $40, Facebook would trade for 93 times trailing earnings and 25 times 2011 revenue of $3.7 billion. … If Facebook’s profit doubles in 2012, topping the 65% gain in 2011, it would earn 86 cents and trade for nearly 50 times earnings.

The FB offering brings back “eyeballs” as a major performance metric – in this case, Facebook’s 845 million users and the assumption that there simply must be ways to make lots and lots of money off of all those eyeballs.

Exuberance. That gee-whiz enthusiasm, built on a rising market and a technology so popular grandmas are using it to follow the kids’ activities online, is just a little scary. The New York Times‘ Jeff Sommer commented this weekend:

THE financial system may not be in great shape, but why dwell on it? Stocks are rising and I.P.O. euphoria is in the air. … Greed in the market is rising, and for some seasoned investors, there is an uneasy sense they’ve read this script before.

“It’s like we’re finally emerging from nuclear winter for I.P.O.’s but we’ve forgotten our history,” said Harold Bradley, chief investment officer for the Kauffman Foundation and a former executive with the American Century mutual funds. “If we don’t start paying attention, we’ll be making the same stupid mistakes all over again.”

If the stock market teaches anything, it is to keep historical perspective, watch the broader context of the economy and markets, and not bet too much on an upward-sloping line you can draw through the past couple of years’ performance.

Good news for investors is that Facebook’s S-1 filing reports five years of rapidly rising revenues and three years of real earnings, also fast-growing. So this isn’t an “idea on a cocktail napkin” IPO from 1999. But neither is it J&J or Procter & Gamble.

If I were the IRO for Facebook, I would be emphasizing three messages to investors:

  1. Revenue and earnings. We have ’em, and here’s why they are sustainable. Investors should understand the varied revenue streams and their profitability. The IR story is about financial returns, not the social mission.
  2. Value for customers. Not the 845 million – users are essential but aren’t the ones who pay Facebook. The business is selling access to FB’s users to advertisers, application developers and the like. How much value does Facebook deliver to these customers – now and over the next few years?
  3. Durability. Investors must be concerned about what happens if Facebook’s “cool factor” wears off and users start taking photos and events and friends to newer, cooler platforms. Facebook needs to communicate its strategies for sustaining the dominant position in social media.

A friend tells me his worst investment decision ever was Apple: He bought AAPL at $15 a share and sold when it hit $35 – and he’s been kicking himself all the way up to $450. I must admit my investing instincts run in that same vein. Apple is a great example of “cool” staying cool – for consumers and shareholders. So Facebook may soar in its IPO – and continue to fly in the years to come.

What are your thoughts on the Facebook IPO?

© 2012 Johnson Strategic Communications Inc.

All I wanna know is, how much?

December 20, 2011

Private companies contemplating an IPO – and small caps debating whether it’s worth it to stay public – sometimes tally up the costs of complying with Sarbanes-Oxley, filing SEC reports, releasing earnings and so on.

Now Ernst & Young has gathered data from 26 companies that did IPOs in the past two years to come up with an answer. As reported in “The True Cost of Going Public” in CFO magazine’s December 2011 issue:

Operating as a public company adds about $2.5 million, on average, to a company’s cost structure, with $1.5 million of that devoted to higher compensation for CEOs, CFOs, and others in the finance function, such as investor-relations professionals, according to the survey. That figure also covers increased board costs, as more than 80% of companies had either added new members to their boards or increased director compensation prior to their IPO.

The accounting firm said companies spent an average of $13 million on advisers to help with the IPO – plus $1 million a year in various other fees for advisers. Where does all this advice come from?

Most companies retained at least 11 third-party advisers in connection with the IPO, the survey found, including, universally, investment bankers, attorneys, and auditors. About 70% of companies hired an investor-relations firm, while 40% hired a road-show consultant.

The benefits of being public vary – among them access to capital, liquidity for founders or venture capitalists, reduced cost of capital, currency for acquisitions, higher visibility and stock-based compensation. All figure in the reasons companies cite for going public and staying that way. Ultimately, each firm and its own shareholders must decide whether the benefits do outweigh the costs.

What do you think: Is being public worth it?

© 2011 Johnson Strategic Communications Inc.

IPO in the midst of Japan’s earthquake

March 11, 2011

Our prayers go out for the Japanese people after the massive quake and tsunami.

From the Wall Street Journal page live-blogging the quake comes one small vignette that may amaze investor relations colleagues: Calbee, a snack food maker that is 20% owned by PepsiCo, had its IPO today on the Tokyo Stock Exchange.

The WSJ blog reports:

Calbee’s shares did well, outperforming the market. But for [Akira] Matsumoto [chairman and CEO of Calbee], the day got a lot more memorable after the exchange closed. That’s because he went ahead with a news conference, in front of about 50 reporters, after the closing bell—even as aftershocks following the big earthquake, just 15 minutes or so, continued to rattle the exchange. The conference was held in the bourse building, which shook badly in part because of its quake-absorbing structure.

Even as bourse staff warned colleagues, “Please wear a helmet!” or “Keep your head under the table!,” the press conference kept going. Mr. Matsumoto soldiered right on, stopping briefly only when warnings over the P.A. system temporarily drowned him out.

And he stayed on-message. “I feel very grateful for the price (rise),” he said, after discussing corporate strategy rather than earthquakes.

Wow is all I can say. Congratulations to Calbee for getting the IPO done. But more importantly, we offer our heartfelt sympathy and best wishes to all who are grieving or struggling with the aftermath of this catastrophic natural event.

Before doing that IPO …

June 30, 2010

Think twice – maybe you should even take a third, fourth or fifth look – before going public, Erik Birkerts advises private-company owners in a piece called “Hey, Where’s My Gulfstream?!” in the July 2010 issue of Mergers & Acquisitions.

Birkerts, a veteran of venture-backed companies that did IPOs in 1999 and 2007, now is a partner in Evergreen Growth Advisors, which consults on growth strategies. His reflections on the process offer some useful insights for investor relations professionals and senior management – before or after an IPO.

“The initial public offering of stock – the IPO – holds a mythical place in American business,” Birkert observes. “Employees consider the IPO to be synonymous with windfall riches. Company founders envision the IPO as the ultimate validation of their genius after years toiling on their ideas. Venture capitalists finally look forward to full nights of sleep with the anticipated returns from the IPO ‘exit’ juicing their portfolio. The siren call of the IPO for company lawyers, bankers and accountants is so loud and obvious that no further comment is needed.”

With the IPO market showing some signs of reviving in the first half of 2010, it may be prudent for management teams to – well, look twice before leaping. The M&A journal (which may have a bias as implied in the publication’s name) is available only to members of the Association for Corporate Growth, a private equity and deal-oriented group, so I’ll summarize the steps Birkert advises:

  • Carefully dissect arguments for why the company should go public
  • Have a specific plan for using the capital & communicate it early and often!
  • Challenge your thinking with independent, objective outside advisers
  • Operate from your worst-case financial scenario
  • Select your investment bankers wisely

Birkert notes that management may think of “many terrific reasons to go public,” but “there are as many or more reasons why going public should be feared.” IROs and IR counselors already know these reasons – distractions for management, Sarbanes Oxley burdens, expenses of legal, auditing, IR and other costs, etc., etc.

I particularly appreciate two pieces of Birkert’s advice aimed at not disappointing investors who buy in the initial offering:

  • Communicating your plans for use of the capital. “Although public filings may have generic language, it is best to be explicit during the road show so that the Street accounts for this spending [of the money raised].” If capital goes toward expenses, the early earnings as a public company may disappoint, he says. Worse yet, if management doesn’t have a clear plan, there will be pressure to do something, which sometimes leads to an ill-considered acquisition as a strategic but risky deployment of that capital.
  • Using a worst-case financial secenario. “The temptation is to make the financial forecasts sparkle so as to make the road show pitch compelling to potential investors. … However, if there is one time that Murphy’s Law can be counted on it is during the first year of being a public company. … Be conservative with financial forecasts. Set yourself up to succeed – not to fail.” Leaving a little money on the table during the IPO is better than setting yourself up for a bruising stock-market experience – and litigation.

Not trying to be negative here. I love public companies and the whole relationship with capital markets. But Birkert’s cautionary words echo the sentiments of many small cap IR people – and CEOs and CFOs – who are public but look longingly at privately held peer companies whose “exits” or “liquidity events” kept them private.

© 2010 Johnson Strategic Communications Inc.

Inside the Google IPO

May 4, 2010

Eric Schmidt, chairman and CEO of Google, tells a good story in the May 2010 issue of Harvard Business Review – taking us behind the curtain of the initial public offering for the cyber-giant that is everywhere in our lives.

Investor relations practitioners will enjoy this tale (“How I Did It: Google’s CEO on the Enduring Lessons of a Quirky IPO” – available free on the HBR site).

Schmidt dwells on the Google culture that was determined to be different. This IPO was different … from the decision to do a modified Dutch auction offering … to an unusual letter from the founders in the registration statement (“An Owner’s Manual” for Google’s Shareholders) … to the Playboy interview during the quiet period, which Google added to its S-1 to cure the selective disclosure issue … and – especially – those values Google holds dear (“Don’t be evil” and the like). See the registration statement here. You don’t have to buy it all to appreciate the story.

Somehow it worked out, despite a so-so market in Summer 2004. Schmidt recalls:

We flew overnight to New York to watch our shares start trading on the Nasdaq on Thursday, August 19. We showed up in the morning, bleary-eyed. That day the Wall Street Journal had run a front-page piece with the headline “How Miscalculation and Hubris Hobbled Celebrated Google IPO,” and CNBC commentators were talking us down all morning. I remember thinking as we headed down to the Nasdaq trading floor, We’re screwed.

Just before the trading started, there was a countdown on the floor: 5-4-3-2-1. We watched the first trade, but it wasn’t at $85 [the agreed pricing with the investment bankers]—it was at $100, an 18% increase over our IPO price. … The volume was huge.

All day long the stock price never went down. It closed at $100.30.

We were now public. Thrilled and exhausted, we flew home to California.

The investor communications effort back in ’04 was unconventional, and Wall Street naysayers said GOOG wasn’t going to make it out of the IPO starting blocks.

But Google raised $1.67 billion on that August day, selling a minority of its shares and establishing a market capitalization of $23 billion. Today, the market value is $161 billion. It’s been a pretty good ride for the Googlers, wouldn’t you say?

© 2010 Johnson Strategic Communications Inc.