Price Does Matter
Ranking: #418, 1999
Cause of IPO death: A last-minute "haircut" on the offering price
Cost incurred: $1 million
"There's nothing more exciting than being the CEO of a successful public company," says Nick Canitano. And then he laments, "I had it in my hand and lost it."
When Canitano, the CEO of CCAi, speaks, you can hear the ache in his heart. And the resignation.
It's mid-July -- about four months since the IPO died -- and his thoughts still race between what could have been and what is. CCAi could have been on its way to buying up more companies. It could have paid down some debt. And it could have begun paying back investors such as TA Associates, the Boston venture-capital firm that poured $16 million into the information-technology company two years ago. But instead the company has put acquisitions on hold. It's still $27 million in debt. And its investors and 320 employees are no closer to cashing in their chips.
All because Canitano made the heart-stopping decision to walk away from an IPO in March, when he was just hours away from the summit. The decision came on the heels of an exhausting 17-day road show spanning Europe and the United States. The CEO could practically touch the flag at the top of the mountain.
"At noon on the last day of the road show, March 8, we thought that the deal was done," Canitano says. All that remained was to set the final price per share, or cover price, on the prospectus. "We thought we'd be in the range of $10 to $12. Surprise! We weren't." At 4 p.m. that day, the underwriters -- a stellar team that included BancBoston Robertson Stephens, Lehman Brothers, and Donaldson, Lufkin & Jenrette -- delivered the final offer from the large institutional investors: $8 a share. The steep discount shaved millions from CCAi's would-be proceeds.
Initially, claims Canitano, "we were willing to take a 'haircut' to go public." But the more the CEO thought about it, the more he was unwilling to share the upside "with people who only saw the risk." Besides, the stock could have ended its first day of trading even lower than $8. "I didn't want to start my public life that way," he says. So he balked. But he didn't act alone. His partners (his wife, Annette; Ken Conley; and Conley's wife, Karen) all concurred. The foursome had started the company 16 years earlier, when they were all around 30 and just starting their IT careers.
Over the years, the pace has seldom let up at the Mayfield Heights, Ohio, company. The two couples identified a growing demand for what's now known as "enterprise resource planning," or ERP. "Economic slowdowns were not a problem for us," says Canitano. "We have always grown right through them." Going public seemed like the ultimate crowning glory. "A lot of people worked really hard, and they wanted to be part of a group that could say, 'Yeah, we helped this company go public.' "
But several unforeseen stumbling blocks would stand in the way. The ERP marketplace, dominated by large players such as Oracle, PeopleSoft, and SAP, was slowing down after years of runaway growth. When the big companies' fortunes flagged, Canitano found himself in the hot seat, despite his own company's nonstop growth. During the road show, would-be investors questioned him intensely: To what extent are your fortunes tied to the Oracles of the world? How do you measure your sales pipeline? Canitano admits he didn't always have complete answers.
"When you do a road show, you find out what people think your warts are," Canitano says. "Looking back now, I can say their assessments were valid. I didn't see it that way at the time."
Perhaps because of the industry upheaval -- in which one major company's president resigned, another announced a bad quarter, and stock prices fell -- the value of Canitano's much smaller company dropped in the eyes of investors. "Add a couple of your own blemishes," he says, "and it all added up." A company can do well for "the first 10 or 12 days" of a road show, he comments, "but then you hit New York and Boston at the end, and that can do you in."
Still, he was unprepared for the 11th-hour prospectus price. On the day Canitano canceled the IPO, "it seemed," he says, "like a crushing defeat." The CEO quickly dispatched the news via E-mail and voice-mail messages to hundreds of employees around the globe. But not before some saw the stock listed on NASDAQ and mistakenly believed the company had indeed gone public. Ultimately, Canitano was comforted by those employees who applauded his decision not to sell the company short.
The underwriters were perhaps not so understanding. "I'm sure they felt we were making a mistake by walking away from the offer," Canitano says. And some days he wonders, too. As of July, visitors could still download the prospectus from CCAi's Web site -- as if the company was in a state of denial over the failed bid. The facts remain: the business still needs a major cash infusion; its current valuation is about 75% the market cap it would have enjoyed as a public company; and it will be months if not years before CCAi gets another run at the public markets.
"You have to prove that anything that clouded your IPO the first time has gone away," says Canitano. "It certainly puts you on the shelf for a while -- maybe as long as 24 or 36 months." By then, however, many employees' stock options will be fully vested, and Canitano expects that sales will more than double -- to at least $100 million -- well before then.
"The penalty for not going public," he says, "is that we still have a great private company."
Susan Greco is a senior writer at Inc.