But he wasn't gone for long. After the prospectus was put to bed, McKim embarked on what are called road shows. Organized by the underwriter, the shows take place before gatherings of well-fed institutional investors, and consist of presentations of the company, its management team, and its proposed deal. The grueling and repetitive nature of the shows compares unfavorably to a political campaign, observes McKim. "We'd end a breakfast meeting in Chicago and rush out to be in Minneapolis at noon for lunch. Then back to the airport to make dinner that night in New York. By the time you're done, it's close to the next day.'
For two weeks McKim and two other CLHB officers scoured the country's financial centers, flipping charts, screening slides, and avoiding rash predictions (the SEC allows discussion of only what's already in the prospectus). The underwriter keeps tabs on how much is ordered at what price: 10,000 at $9.50; 30,000 more at $9; another 50,000 if the issue goes off as low as $8.50. "As you travel from city to city," McKim remembers, "it's like finding out how many people are voting for you. You call up after each show and ask how's the book? What's the pricing like? If nobody ordered any, you think you did a lousy job.'
After the road shows' tents are folded and major customers have declared for or against, the underwriter's book collectively determines at what price within the target range the entire flotation can be sold. If the price is lower than hoped for, the company might reject it. When the SEC acknowledges that all the disclosures have been properly stated, the final price is announced and printed -- in black -- on the publication's now-slick cover. The SEC's effectiveness declaration is valid for 90 days, during which interval -- not to waste time, usually that very morning -- the deal is consummated as the underwriter at last signs, and the security starts trading in the public market. If the stock was fairly priced and the CEO goes back and does his job well, it should go up and up and make everyone -- you and the Other People -- exceedingly rich.
As it turned out, CLHB's stock not only was fairly priced, but was significantly underpriced. Had the issue emerged before October 19 as planned, McKim intended to sell as many as 1.5 million shares of common stock at as much as $15 each, for a possible gross of $22.5 million. After October 19, the underwriter discounted the offering to 1 million shares at $9 each, a gross of only $9 million. Before the meltdown, based on fiscal '87's earnings, at $15 per share the IPO was pegged at a hefty price-to-earnings ratio of 44 -- then not out of reach for a dynamic company in a surging industry. But with the collective price/earnings ratio of the conservative Dow Jones Industrials having been trimmed from over 20 to 15.9 in a couple of months, even the multiple of 26 to which CLHB's share price was reduced could have met with resistance from Crash-shocked investors.
McKim could have postponed the offering and tried again later, but after all this effort and expense, CLHB was ready and, come hell or high water, CLHB was going. The disappointed McKim shrugged off the damage as a cost of doing business. At that, it's a cost many would gladly pay. As owner of 4,716,082 shares, on the day that CLHB went public with a million more, even at $9, its 32-year-old founder was verifiably worth $42,444,738; his two children, holders of 140,000 shares in trust, another $1,260,000.
After offering costs and the underwriter's discount, Clean Harbor's IPO netted more than $8 million. Combining that with $5 million received three months earlier from venture capital investors, CLHB repaid more than $12 million of its indebtedness in fiscal 1988 and stands to save considerably on interest expense. Indeed, perhaps $1.2 million in the next full year. On each of the 6.7 million shares outstanding after the offering, nearly 18¢ that earlier would have gone to debt service now will appear on the bottom line as instant earnings. Even 8¢ a share in aftertax earnings is significant for a stock selling at a P/E of 26: it would translate to $2.08 a share in CLHB's stock price, an extra $14 million in its market value (number of shares outstanding multiplied by price per share), and a $9.8-million increment in the founder's personal net worth. The wonders of OPM!
By March, CLHB stock had climbed past $15 in the open market, proving that the precrash price was tenable postcrash, after all.
It was a nice, if bittersweet, ending. But for McKim, that wasn't the whole of it. In July 1988, approximately eight months after its original offering, Clean Harbors Inc. sold a second stock issue, this time of 1.1 million authorized shares, plus 255,591 additional shares from selling stockholders.
Why so soon? Because there wasn't enough stock out there in the public market to interest big money, McKim felt. Companies with a float large enough to accommodate institutional buyers and sellers get almost 60% more for their stock than similar companies with an insubstantial float, he determined, concluding that CLHB's own stock had been hurt that way. His insistence on pressing ahead after the Crash with a lesser amount had come back to haunt him.
Not too pitiably, however. "The experience was fantastic, and I would do it all over again," exults McKim, apparently a glutton for punishment as well as for a decent standard of living. "I wouldn't even change the timing.'
