The Accidental IPO

The recipe for a perfect IPO: Take one air-traffic controller. Find a good cigar. And stumble across an investor who likes a good smoke

Among last year's bumper crop of companies with revenues of less than $10 million that went public, could there be a more implausible story than that of Kevin Doyle's Caribbean Cigar Co.? Consider this: just three years ago Doyle was an air-traffic controller in Miami. Earlier, he had dabbled in the restaurant trade but abandoned the business world--permanently, he thought--for the security of a government job. "I bought a house in Key Largo and was living it up, diving and fishing," he says. With his beard, long hair, and earring, along with his fondness for rum, he fancied himself, with humor, a kind of pirate. The stock market, well, that was alien territory. "I had never even looked at the Wall Street Journal," he says. "I'd never owned a share of stock."

Today, Doyle still sports the pirate look, but now he's running a manufacturing company he founded in 1994 and took public last August, when its revenues, in its most recent fiscal year, were only about $820,000. Priced at $7 for the initial public offering, the stock reached $11.75 by the end of 1996, giving the company a market capitalization of nearly $60 million, with Doyle controlling some 35% of the equity.

Not bad for a 38-year-old guy who started the business almost as a lark.

Doyle is a connoisseur of cigars, and when he found one from the Dominican Republic that he liked a lot, he tracked down the U.S. broker, a Cuban ÉmigrÉ living in Miami named Carlos ToraÑo. That was in the mid-1980s, and Doyle merely hoped to get the cigars a little cheaper. "I met with Carlos for two hours and left his place with a wholesale box of cigars. I ran out of there as if I'd gotten away with murder," he recalls, "because I had no business buying wholesale. I was a retail customer. But that's how I got into this."

In his spare time Doyle peddled those cigars from the back of his truck, selling at retail mostly to friends. He went back to ToraÑo for many more boxes over the years. "No matter what I bought from him, it sold. There was an energy building about cigars. And one day," Doyle says, "he suggested I open a small store somewhere."

He found a location in Key Largo, persuading a merchant to carve out 1,200 square feet in her store, and with a Home Depot charge card and his bare hands, Doyle built Caribbean Cigar's first retail site. He hired a friend to manage it, and opened for business in November 1994. His expectations were modest. "It was never supposed to make money," he says. "I just wanted to pay the mortgage and have a great private collection of cigars."

To add panache, Doyle recruited two master cigar makers, hand-rollers trained in their native Cuba. They worked weekends in the store's front window, almost like a tourist attraction. Doyle furnished them with his special blend of Nicaraguan, Dominican, and Honduran long-fill tobaccos, with Ecuadoran leaf as wrappers. Tourists loved the product and carried word home about the tiny factory in the Florida Keys where Cuban immigrants hand-rolled premium cigars.

Business ignited virtually overnight. "The cigar craze was getting huge, and there was a thirst for something new and different," Doyle says. "I was getting calls from stores all over the country, asking if I could supply them. Our cigars didn't even have a name or a band, but we began wholesaling, to the point where those two rollers left their regular jobs to go full-time with me." In the summer of 1995 demand turned fierce. The Signature Collection, as Doyle named it, debuted at a tobacco dealers' trade show, where it was such a hit that Doyle landed orders for 7,000 boxes--175,000 cigars. "It would have taken my rollers seven years to handle that," he says. "Obviously, I had to do something. This had gone way beyond my original intention."

Serendipitously, one of Doyle's customers was a well-connected "angel" investor named Michael Risely. Moreover, Risely was on good terms with Bob Kirk, president of Barron Chase Securities, a South Florida­based investment bank known for taking niche deals public. Doyle's financing needs were urgent, but he was suspicious. "Mike was talking about bridge loans and IPOs, and I was ready to boot him out, afraid he was trying to take my business away. I didn't know squat about the stock market. But he was persistent, and when he explained how I might raise $10 million in a public offering, I got more interested."

In the late summer and early fall of 1995, Risely and others pumped in $250,000 to help Doyle expand operations. One investor, Thomas Dilk, even joined the company as chief financial officer. Doyle finally quit his air-traffic-control job and threw his energy into starting a cigar factory in Miami's Little Havana, where he stationed 10 Cuban rollers. Production in the new facility commenced in December. Demand surged, as did investor interest, and by the following March, Dilk had engineered a $2.5-million private placement. Doyle tripled his factory capacity to keep pace.

Meanwhile, the rage for premium cigars, some selling for $10 apiece or more, was accelerating. Americans smoked about 280 million of them in 1996, up from 104 million in 1992. Through Carlos ToraÑo, Doyle had forged ties with tobacco growers throughout the Caribbean basin, attempting to lock in his raw material, but worldwide demand for "leaf" threatened to outstrip production. Doyle needed more cash--fast--to guarantee a large and stable supply base, and plans for an IPO got under way.

CFO Dilk had previously cofounded two companies and taken them public, and he enlisted the lawyers and accountants from those deals to expedite matters. Barron Chase signed on for the underwriting job. And in July 1996, Kevin Doyle led a company delegation through a 10-city road show, one with a stylish twist.

The two-hour presentation at each stop featured the typical videotaped company story and a question session, and then out came the cigars. "We brought two Cuban rollers with us, and they made cigars right at the meetings," Doyle says. "The rollers loved it. They were in suits for the first time, with the price tags still on them. The rooms were full of smoke, and more than once the smoke alarms went off. There was a lot of energy and enthusiasm."

Dilk knew the show would go well. "You've got to understand," he says, "you're pitching the deal to brokers, who as a community love cigars anyway. It fits their whole image. They were totally enthralled to be smoking very fine cigars for free. It was almost a social event, like a bunch of guys smoking cigars and playing golf, having a few beers--a festive atmosphere. We had these young, hungry, aggressive brokers, with a product they love and a story that's simple, in a market that everybody knows is booming. It had great karma."

Bob Kirk of Barron Chase, himself a cigar fan, liked the company's low-tech slant. "It's not like a high-tech gizmo that can be obsolete next month when the next brightest mind creates something better. There's no technology risk. And they're in a market where the demand-supply equation is very favorable to a manufacturer. This was the first cigar company in years to go public, and that attracted a premium in the market."

Indeed, Doyle's team planned to price the offering at $5 a share, but broker interest bumped the price to $7. Listed on Nasdaq's SmallCap Market, CIGR began trading on August 1, 1996. Euphoric and relieved, Doyle and his lieutenants fired up cigars to watch the symbol move across a Quotron screen for the first time. Two days later the proceeds were wired to Caribbean's account--$9.3 million, after fees. When the price moved quickly to $10, Doyle's net worth, at least on paper, stood just shy of $20 million. "It is still unbelievable to me," he says. "I had to pinch myself."

Jay Finegan is a senior writer at Inc.


BARRON CHASE SECURITIES, Bob Kirk, 7700 W. Camino Real, Boca Raton, FL 33433; 561-750-6081 85

CARIBBEAN CIGAR, Kevin Doyle, 6265 SW Eighth St., Miami, FL 33144; 305-267-3911; fax, 305-267-6026; 85

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