At root, a prospectus is a sales document aimed at investors. (In SST's case, the prospectus also helped recruit more engineering talent.) But it has to be faithful to the facts. That leads to tensions between underwriters and lawyers; drafting sessions can end in shouting matches. In SST's case, there were plenty of debates over syntax -- but no donnybrook. The writing of the document embodied makeover job number three: the creating of a company biography that would formally chart SST's history and give it a story to tell. (For more on the importance of having a story, see "Why Every Company Needs a Story," [Article link].)
Prospectus crafting ran well into October. All the major themes were developed in the first three weeks -- the summary, risk factors, use of proceeds, management's discussion and analysis, and so on. Cooley Godward played quarterback, integrating the drafts. Hambrecht & Quist associate Glover Lawrence drafted the introduction and the text on industry background in the business section. Michael Praisner did a first draft of the management discussion and analysis section; David Sweetman, SST's vice-president of quality and customer support, tackled the portion on the advantages of SST's products.
SST's red herring showed two skyrocketing revenue quarters -- reaching $2 million and $7.2 million -- and the only quarter of profitability to date. The final prospectus, distributed about five weeks later, included third-quarter figures too; the $12.5-million revenue number would be just what veteran fund managers would be expecting from a fast-growing chip company. Plus, there was now another fatter net income number to include -- $2.3 million for the quarter ended September 30, up from $733,000 for the previous quarter.
As they worked on the document, the IPO team also began makeover job number four: preparing for the road-show performance designed to persuade fund managers that they'd never seen an investment opportunity like this one. There were more records to be scared up, and there were glitches -- mismatches between Coopers & Lybrand's numbers and Praisner's calculations. Then there was the shtick itself. Yeh was a road-show neophyte; Praisner hadn't been on board for long. The advice from the underwriters: hone your act in front of Europe's kinder, gentler fund managers before hitting New York City and Boston.
Yeh and Praisner needn't have worried about their performance. Or perhaps it's as well that they did, because U.S. investors, for all their reputed rudeness, were receptive. SST opened at its prospectus price of $9 a share on NASDAQ on November 22, 1995, closing that day at $13. All told, the IPO grossed more than $40 million, at the high end of what Yeh had hoped for. SST's out-of-pocket costs, not including underwriters' commissions, ran to nearly $1 million.
The biggest cost, of course, may well have been the drain on everyone's energies. During the road show, the team routinely gabbed about the well-deserved vacations they ought to take. Yeh, the others decided, should go to Paris with his wife. However, once he got back to his newly public business, Yeh returned to his ambitious goals: there's a billion-dollar business here just begging to be built, he proclaimed. Can he possibly do it? "He's done a very, very good job of delegating real authority, both inside and outside the company, in order to realize the goal he's set for himself," observes James Davidson of Hambrecht & Quist. As Yeh demonstrated during the IPO process, he is willing to listen, to change what needs to be changed, to act swiftly. He understands that SST is no longer a start-up whose survival depends solely on his ability to nurture it.
In the end, he himself may have undergone the most significant makeover of all.
THE PLAYERS
Kenneth Hao
Hambrecht & Quist Principal
THE UNDERWRITER serves as a master of ceremonies. Underwriters set the timetable, ensure that the company has a compelling and consistent story to tell Wall Street, assemble the investment bankers who sell and price the stock, and organize the road show.
Mark Tanoury
Lawyer
THE COMPANY'S attorney serves as chief liaison with the SEC. The lawyer helps the company write its prospectus and scrutinizes all the company's agreements, like stock-option plans and equipment leases. In addition, the lawyer acts as a negotiator with the underwriter, assisting in the valuation process.
Bing Yeh
CEO
THE CHIEF EXECUTIVE OFFICER hires a chief financial officer, selects all the principal players in the offering, makes sure the staff is available for and committed to the IPO process, and participates in everything from writing the prospectus to pricing the deal. The CEO also stars in the road show.
Michael Praisner
CFO
THE CHIEF FINANCIAL OFFICER's main job is to get disparate monthly financials into quarterly reports. The CFO also makes sure the books close in a timely manner and hires a controller to handle the finances after the IPO. And the CFO develops and defends the financial projections the underwriter wants.
Charles Noreen Jr.
Accountant
THE ACCOUNTANT audits the financial statements included in the SEC registration statement and works with the CFO to get the company's numbers into shape. The accountant also verifies financial data sent to the underwriters and helps answer questions from the SEC.
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