Attorneys for Powersoft provided the company with a due-diligence documents list -- seven pages outlining what they and the underwriters wanted to see so they'd know that what was written in the prospectus was, in fact, accurate and complete.
"From my perspective, it was the world's most perfect orientation to a company," says Gannon, whom the Burlington, Mass., applications-software company hired last October to help take it public. "And that's particularly true for me as a new CFO. You identify every snake under every rock that ever existed in the past five years." As a result, there are no surprises.
Here are some of the items on the list, along with Gannon's reflections on what they can help uncover.
Articles of the organization, bylaws, minutes of meetings -- the paper trail that reveals how company decisions evolved.
Reports to securities holders: "Things like earnings per share: when you're young and losing money, you don't care how many average weighted shares outstanding there are or what their earnings are, because there is no constituency that demands it. Certainly, banks don't care. Companies tend to leave out details like that and then have to go back and re-create them later."
Audits, quarterly financials, business plans, projections: "To spend the money to build a company with extensive financial reporting from the beginning is a judgment call. If a company ends up not going public, some people would call it a waste. Others would view it as money well spent anyway, because you're running a professional organization. At some point you're probably going to seek debt from a bank or financing from a venture-capital group, and any of those vehicles will require at least some degree of housekeeping."
Records of debt.
Investor capitalization -- records of who owns shares, who owns options, who owns warrants: "That keeps you from a situation where you go public and all of a sudden somebody says, I own 100,000 shares, and nobody's got any record of it, or someone claims to have 20,000 options at three bucks when the company thought they were at six bucks."
Litigation, threatened or pending.
All governmental permits, license approvals, consents: "Anything you need in order to demonstrate you are properly qualified to do business in various states and countries."
Anything related to personnel -- work charts, employee-benefits plans, contracts, pension arrangements.
Property -- full documentation decribing what you own, where you own it, what your outstanding obligations are on it, and whether there are any issues such as environmental-waste concerns and what their legal ramifications are.
Major contracts with customers and suppliers: "Your shareholders don't want to find out that you've made a commitment to support a product line that's not profitable."
Lists of customers and suppliers.
Press clippings.
Gannon's advice is like that of everybody who's been through an initial public offering: start preparing early. "When you want to go public," he says, "there's usually a pressing reason. There's a window of opportunity, or your business is accelerating, or the market is very accepting of new IPOs at the time, or your market sector is doing well, or you want to do it for competitive reasons or positioning, or you need the cash."
Making a public offering is not the kind of thing, he adds, that you want to delay just because you don't have your act together.
Percentage of CEOs who said that before going public, they . . .
hired a Big Six accounting firm: 35%
had their financials audited for the first time: 53%
brought in a new chief financial officer: 54%
made deliberate changes in order to improve the balance sheet: 55%
Words used to describe the road shows:
Drudgery, Educational, Enlightening, Exhausting, Exhilarating, Fun, Grueling, Inspiring, Intense, It happened, Long, Long forgotten, Necessary, Normal, Pressed chicken, Selling, Superficial, Tedious, Time-consuming, Tough
Advice to CEOs considering an IPO from those who have done it:
"Be aware of quarter-to-quarter pressures to perform."
"Do it if you must and if you can get results and deal with the scrutiny."
"Seek advice on other alternatives."
"Know that the process will take far more time than anticipated."
"Don't do it unless there is a compelling reason; the company will change from being proactive to being reactive."
"Don't be afraid to do it, but know that picking an underwriter is a key step."
"Get good legal advice, and be prepared to live in a fishbowl."
"Use board expertise when possible."
"Give up other duties."
Percentage of CEOs who said:
deciding to go public was a difficult decision: 23%
going public was a goal from the company's beginning: 43%
their IPO was smoother than others: 85%
analysts don't understand the company: 27%
they were surprised at the amount of time it took to prepare for the offering: 30%
Advice to CEOs considering an IPO from those who have done it:
"Network with other CFOs and CEOs who run comparable companies that have recently gone public."
"Run your company as if it were already publicly held."
"Don't let company matters come second."
"Develop a very good road-show presentation."
"Learn more about the process; take time to prepare."
"Raise what you need times two."
"Don't try to understand the street, and be in good physical shape."
"Do it -- when ready."
How long was the CEO involved in the IPO process?
Less than three months: 36%
Three to six months: 50%
More than six months: 14%
Average number of months: 4½
Average hours per week: 33
