Taking Your Company Public

Raising money via the capital markets offersrewards as well as risks. Here's what to considerbefore making such a move.

the driver’s seat and get the money he needs to go head-to-head with bigger rivals the likes of Siemens. Still, he’s quite wary.

“I’m anxious,” he says, “but I don’t see us getting to that next level until 1998 at the earliest.” For now, Davis is taking pivotal steps toward the big day ahead by contracting an independent auditor to monitor business data and hiring a full-time accountant as well.

So is he missing out by being so cautious? Not necessarily. While indications are the IPO boom has cooled, already by mid-March this year 121 new issues had hit the market, a sizable number compared with 1990. So why wait? “We typically find that from the point management starts mulling over a stock issue, a company needs to set aside one to two years to get its house in order and really prepare for going public,” says David Sylvester, a senior partner at the Washington, D.C. law firm of Hale and Dorr, who’s worked on six IPOs in the last 18 months alone.

Even so, you’re not guaranteed automatic access to investors. Anthony D. LeCour, a managing director at Utendahl Capital Partners, says a mere two or three of every 10 companies his company works with actually end up issuing shares. The rest opt for financing of another sort or, in some cases become so discouraged by the rigors involved that they give up.

By now, a generation of African American entrepreneurs has survived the process with varied success, ever since Parks Sausage Co. lead the way with an offering in 1969. Reginald F. Lewis, the late financier, managed to pull off close to a $1 billion leveraged buyout of consumer products behemoth TLC Beatrice, but couldn’t convince Wall Street to support a $95 million IPO in 1989. George E. Johnson, founder of Johnson Products Co., rued the decision to go public, especially as his control of the hair care products manufacturer eroded over time.

Robert Johnson, chief executive of BET Holdings, ran into a bit of rough going when he went public in 1992. When analysts became fixated on minute details of the operation, the stock market socked BET shares when company projections didn’t jibe with Wall Street expectations. Not that BET came out the worse for the experience: In becoming the first black company on the New York Stock Exchange, the Washington, D.C. broadcaster’s IPO raised $72.3 million.

PROS AND CONS
Weighing your choices? True enough, going public has quickly become synonymous with joining the business elite, a definite plus. Value judgments aside, it’s a source of working capital, and an avenue to myriad other types of finance. Proceeds can go to everything from outfitting a sales force with new computers to buying out a competitor. Using shares as collateral can shave points off interest you pay creditors in the future. And of course, if your stock does well, it’s the perfect way to thump your chest before all your peers.

W. Don Cornwell, CEO of Granite Broadcasting Co., a former BE 100s company of

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