FINANCIAL
September THOMSON 2006
IPO Best Practices
Given the recent surge in initial public offerings during the first half of 2006, IPOs appear to be back in favor as an effective
means of raising capital for achieving corporate objectives. While market climate is an important consideration in launching
an offering, companies must also take the time to adequately prepare for public life before taking that step. This report outlines some of the key steps companies should take in the pre-IPO process in order to maximize their chances of a successful
offering and a long and prosperous life as a public enterprise, as well as insight from IROs who have been through the IPO
process. For more information, please contact Kara Newman at [e-mail].
Executive Summary
Given the sheer amount of preparation involved, the transition from private to public status should
be viewed as a long journey - a transformational process - rather than a one-off financial transaction. For
many companies, a successful preparation process takes two to three years, and for some it takes even longer.
As Molly Salky, Investor Relations Director at Build-A-Bear Workshop puts it, "The IPO process is best viewed
as a marathon, not a sprint."
Companies that fail to adequately prepare for public life may greatly diminish their chances of a successful IPO, not unlike a number of technology companies that went public during the 1990s "bubble," only
to go belly-up months after their offerings.
A lack of preparation may not only diminish the likelihood of achieving optimal stock valuation and
financing potential but could actually put a company in a worse situation than before going public.
However, a strong and well-planned IPO can provide an excellent head start on life as a public company. Good advice from Barbara Gasper, Senior VP of Investor Relations at MasterCard: The more prepared
you can be, and the more you can act like a public company before you actually do an IPO, the easier it will be.
Table of Contents:
Overview - Current Environment for IPOs...................................p. 2
The IPO Process.........................................................................p. 3
Rules of Engagement...................................................................p. 6
Q&A Case Studies
MasterCard.......................................................................p. 9
Build-A-Bear Workshop...................................................p. 13
IPO Preparation Checklist.............................................................p. 15
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Overview
As of the end of the second half of 2006, companies
increased the amount of capital raised via IPOs by nearly
one-third over last year, the most successful IPO market in
the past five years. Although a summer slowdown in the
equity market has capped the number of companies
going public very recently, private companies wishing to
go public may be tempted to strike while the IPO iron is
still hot, rushing the transition to public status at the
expense of key preparations.
So what should companies do to maximize their chances
of a successful IPO?
However, companies that fail to adequately prepare for
public life may greatly diminish their chances of a successful IPO. This was especially evident during the 1990s "bubble," when a number of technology companies, seeking to
profit from the market's bull run, quickly jumped on the
IPO train only to go belly-up months after their offerings.
Moreover, companies should have strong and credible
investment merits and begin articulating a clear and
consistent message about their investment story to
potential investors and other stakeholders as early as
possible. They should also implement risk management
and corporate governance procedures to safeguard
their own as well as other stakeholders' interests and to
fulfill regulatory requirements.
To achieve optimal share value at the IPO and beyond
and successfully use the offering to meet corporate and
investor objectives, companies planning on going public
are well advised to start preparing for public life well
before the IPO due to the massive amount of work
involved in making the process a success. For many companies, the preparation process takes two to three years,
and for some it takes even longer.
A lack of preparation may not only diminish the likelihood of achieving optimal stock valuation and financing
potential but could actually put a company in a worse
situation than it was in before going public. According
to Ernst & Young's Global IPO Survey, conducted in 2004,
nearly 40% of survey respondents with unsuccessful IPOs
reported that their public status actually "impeded their
ability to accelerate their business strategy, fund internal
growth initiatives, access capital markets and fund
acquisitions." As such, an IPO that is done prematurely
could actually be detrimental to a company.1
The bottom line is... the more prepared
you can be, and the more you can act like
a public company before you actually do
an IPO, the easier it will be. -- Barbara
Gasper, Senior Vice President of Investor
Relations, MasterCard
First and foremost, companies should start acting like a
public entity well before the actual IPO. That means the
systems and processes common to public firms such as
strategic planning, accounting and reporting, disclosure
rules, legal counsel, investor relations and internal controls should be implemented while the firm is still private.
Given the sheer amount of preparation involved, the
transition from private to public status should be viewed
as a long journey - a transformational process - rather
than a one-off financial transaction.
IPO Market Remains Robust
U.S. Initial Public Offerings
Issue Date
Proceeds Amount +
Overallotment Sold
(US$ Mil)
1st half 2000
1st half 2001
1st half 2002
1st half 2003
1st half 2004
1st half 2005
1st half 2006
Number of
Issues
41,806.2
24,039.6
15,487.4
2,325.5
17,089.4
18,330.0
24,206.8
196
47
51
10
95
90
92
*through June 30 of each year.
Copyrights Thomson Financial 2006.
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The Process
Among the key steps in the journey to successful public
status:
Develop a Strong Business Model and Position of
Competitive Strength
Before taking steps to build market awareness of their
business, companies planning on going public need to
ensure they possess many of the qualities sought by
investors, including a sound business model, strong
growth prospects and an ability to compete well. A failure to have these attributes can make for a rough IPO
experience.
A comprehensive business plan should be developed
that provides a clear road map for the company and can
communicate its strategic vision to potential investors
and other stakeholders. Moreover, since much of the
information contained in the business plan is relevant to
the prospectus, having a good business plan can greatly
shorten the amount of time required to produce the
prospectus.
Before the IPO, companies should also map out and consider implementing strategic transactions, such as acquisitions, alliances and joint ventures, aimed at accelerating the company's growth.
Further, companies need to take the time to build a
track record of performance and a position of competitive strength along both financial and non-financial
measures, especially given the characteristics that institutional investors look for when making investment
decisions.
Studies have shown that while superior financial performance measured against peers is the chief investment criteria, non-financial metrics also play a big role in
portfolio managers' buy and sell decisions. A survey conducted by Ernst & Young in 2003 found that non-financial measures made up 35% of portfolio managers' decision making. Some of the key non-financial metrics
include quality and credibility of management, innovativeness, strategy execution and effectiveness of executive compensation. Among financial measures, it is para-
mount to have a history of earnings and revenue growth
and that performance along those measures also stacks
up well against competitors. Other financial attributes
include return on investment, return on equity and cost
control.
A company must not only be able to compete well, but
must also have a strong grasp of its competitive position,
in order to position itself favorably on financial and nonfinancial measures. How does the company compare to
competitors in terms of profit and sales growth, cash
flow, management quality, market leadership, product
quality and other attributes?
Create a Credible IPO Team
Another key step on the road to a successful IPO is to
build strong internal and external teams of skilled and
experienced professionals drawn from legal, accounting
and underwriting backgrounds to guide the company
through the IPO process.
The external or transactional team includes investment
bankers/underwriters, outside legal counsel, public-company oriented auditors and a stock transfer agent,
among others. The underwriter is the principal team
player, offering superior knowledge of the IPO process,
since share issuance is one of its primary business functions. Given underwriters' crucial role, companies should
solicit presentations from several investment banks
before choosing one.
As part of the internal team, it is recommended that
companies hire an investor relations professional, with
IPO experience, early in the pre-IPO process to the
extent they can afford to do so. This provides the company with an expert, who is looking out solely for the
company's interests. Outside attorneys and auditors, on
the other hand, are concerned with protecting their
own interests in addition to that of the company and
may feel compelled to
charge as many hours The IPO process is best
as possible. Mean- viewed as a marathon, not a
while,
underwriters sprint. -- Molly Salky,
have an incentive to Investor Relations Director,
complete the deal Build-A-Bear Workshop
under conditions as
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favorable to them as possible, such as pricing the IPO low
in order to minimize their selling effort. An IR professional with IPO knowledge can help guide the appropriate
selection, compensation and behavior of outside experts.
An independent consultant with IPO expertise also can be
very helpful in this regard.
Further, IR professionals can play a major role in smoothing the transition to working with the investment community. Ahead of going public, the need arises for a
number of IR functions, such as targeting potential
investors, accurately communicating the company story,
optimizing market awareness and ensuring compliance
with disclosure regulations.
Some bigger investment banks prefer to handle the IR
function themselves; however, they tend to be more
open to IR involvement when its role and value as part
of the team is clearly established. If a company cannot
afford an IR professional or consultant, the CFO, along
with a corporate communications or public relations
manager may be called on to play a more active role in
communications activities.
In addition to hiring outside legal counsel, having legal
resources available internally can prove useful, helping
the company save time and money as it navigates the
myriad of filing requirements and SEC rules and regulations related to going public.
Acting like a public company pre-IPO helps to
achieve the following objectives:
Ensure that the investment community is well
informed about the company and is prepared to buy
shares when they become available. To that end,
potential investor constituencies have been identified and communicated with prior to the roadshow.
Train senior management in how the market operates.
Give management experience in working with the
investment community, including analysts, brokers,
portfolio managers and others, so as to become
familiar with disclosure regulations and investors'
information needs.
Have a well-functioning investor relations plan in
place by the time the Registration Statement is filed.
Build an Investor Communications Function
A crucial step in preparing for life as a public company is
to create and implement an active investor communications function. This serves the dual purpose of boosting
the market's knowledge of the business and generating
demand for shares while also preparing management to
be well versed in investors' information needs when
shares are ultimately traded. Investor relations professionals can be very helpful in this process.
Communications should be tailored to investors, providing them with the information they desire, such as the
company's strategic plans, growth initiatives, sources of
revenue and competitive advantages in products or services.
Mechanisms for delivering communications should be
carefully selected to ensure they reach their intended
audiences. Communication efforts should be both
broad-based and targeted in nature. Communications
aimed at a relatively broad investor audience may
include press releases, a company website, media coverage and advertising. Buy- and sell-side analysts in the
company's industry can be broadly reached through
coverage in industry trade publications and participation in trade shows.
Companies may also begin publishing quarterly and
annual financial reports aimed at the investment community. This forces management to think about how to
present its investment story.
In addition to broad outreach, companies should also
target specific buy- and sell-side firms. Sell-side targets
may include regional firms and industry analysts at
national firms, while buy-side targeting may be more
sophisticated, involving
the identification of
Companies should be sure
institutions with investto define their disclosure
ment disciplines that
metrics and parameters
are compatible with the
very clearly from the start
company's fundamental
rather than change their
characteristics.
practices after the IPO. -Molly Salky, IR Director,
When meeting with
Build-A-Bear Workshop
portfolio managers and
investors, companies
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should note current market conditions, highlight their
fundamental strengths and prospects for growth, and
show how and where the company's products or services fit into a particular industry in the market.
Other methods of outreach that may help the company
prepare for its market debut include perception interviews and attendance at sell-side industry conferences.
Sell-side firms can be interviewed to gauge market
awareness of the company and help management bet-
ter understand what information interests analysts in
the company's industry.
Also, attending brokerage-sponsored industry conferences
can educate the company on how its peers present their
investment story and the kinds of questions they are
asked. Moreover, it is not uncommon for brokers to invite
private companies planning on going public to give presentations, providing yet another opportunity for the company to educate the market about its investment story.
Copyrights Thomson Financial 2006.
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Rules of Engagement
Communicating Before and During Offering
In communicating with the investment community, companies must be careful not to violate any restrictions
imposed by the SEC on the type and extent of communications an issuing company can engage in during the
registration process, including the pre-filing, waiting
and quiet periods.
The Securities Act of 1933 was created to address the
causes of the 1929 stock market crash, when stock promoters made huge profits by actively talking up worthless securities in a time when information about public
companies was scarce. To prevent this inequity, the legislation barred a company from hyping its stock via publications or statements not included in the written
prospectus filed with the SEC. As such, companies planning on going public have been restricted from certain
types of communications during a period of time, that
while not specifically defined, has been generally interpreted as several weeks leading up to and following the
offering and has come to be known as the "quiet period."
However, now that information about issuing companies could be made readily and easily accessible via the
Internet and other electronic media, the SEC unanimously adopted new rules last year that greatly eased
the Securities Act restrictions on communications during
the registration process. The new rules, which went into
effect on December 1, 2005, are designed to reflect the
myriad of communication methods available in today's
world, giving investors greater access to information
about issuing companies while still ensuring that the
information is accurate and not misleading. The SEC also
aimed to dissolve some of the confusion among companies about what types of communications meet securities laws. Such confusion has traditionally led many companies to completely clam up during the registration
process.
The new rules essentially give companies more leeway in
promoting securities, allowing them to disseminate
information more widely to investors and the media
during the marketing of initial public offerings. For
example, under the new rules, company executives are
now allowed to be interviewed by the media, provided
that the company files any published articles with the
SEC soon after they are completed. Traditionally, companies had avoided talking to the media during the registration process since under the old rules news articles
published during the period could have violated securities laws.
Still, issuing companies are well advised to work closely
with their legal counsel when providing any communications during the registration process, given that a
number of restrictions remain. For example, any public
statement permitted under the new rules must be accurate and not misleading, meeting the legal standard
that applies to a company's prospectus.
While there may be some lingering confusion about
what types of communications are permissible, companies should avoid complete silence, since studies have
shown that companies releasing positive news toward
the end of the so-called quiet period tend to enjoy a
greater increase in stock price when the quiet period
ends than those remaining silent. The initiation of sellside analyst coverage right after the quiet period expires
has been shown to be especially beneficial in terms of
stock price performance.2
Minimize Window Dressing
Companies may be tempted to dress up their investment story prior to the IPO in an effort to obtain the
best valuation. However, they should avoid portraying
a level of financial health and competitive strength
that is not sustainable post-IPO. Investors may be
unforgiving of a company that fails to live up to its
promises. Moreover, once investors' trust in a company's credibility has been lost, it can be difficult to
regain.
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Corporate Governance/Internal Controls
Prepare an Effective Roadshow
In order to ensure readiness for life as a public entity
and the ability to attract and sustain investor interest,
companies must address corporate governance issues
and put the systems, processes and internal controls in
place that will guarantee compliance with the myriad of
regulations imposed on public companies by the
Securities and Exchange Commission, National
Association of Securities Dealers and the stock
exchanges, among others.
Traditionally, investment banks have been primarily
responsible for preparing the roadshow presentation,
since they have a good sense of what attributes
investors are seeking. However, in the post-research settlement, post-Sarbanes-Oxley world, senior management has been playing an increasingly bigger role in
preparing and delivering the company's story to potential investors, since sell-side analysts are now prohibited
from attending IPO roadshows, and investment bankers
can no longer look to analysts for assistance in marketing deals.
Among the numerous regulations, the 2002 SarbanesOxley Act requires public companies' management to
certify both internal controls and financial results to the
SEC. There are also a number of requirements related to
the composition of the board of directors and the audit
committee. For example, audit committee members
must be independent and the company must disclose
whether at least one member is a "financial expert." The
board of directors should also be independent and have
financial expertise.
Additionally, companies should avoid any questionable
accounting policies, such as aggressive revenue recognition and excessive employee stock options expense.
Also, any compensation extremes between the lowestpaid and highest-paid executives should be eliminated,
and compensation should be largely performance
based.
Early regulatory compliance and steps taken to avoid
corporate governance issues can help to achieve a higher-value IPO by demonstrating to investors that management understands and appreciates the importance
of internal controls in the post-Enron world.
The roadshow presentation content comes largely from
all the legwork that was done ahead of the offering
such as preparation of the prospectus, financial statements, descriptions of operations, markets served and
more. The presentation should be geared to the audience, namely institutional analysts and portfolio managers. It should focus largely on the company's vision,
strategies, competitive strengths, key initiatives, and
operating and financial performance.
During the presentations, investors also evaluate management qualities such as intelligence, knowledge of
the company and industry, strength of personality and
more. As such, it is crucial that management be prepared to put its best foot forward when making road
show presentations. It is recommended that companies
prepare a list of anticipated questions and appropriate
responses in advance and that management rehearse
both the presentation and Q&A sessions.
Market Conditions
Companies may also find it valuable to track meeting
attendance. Looking at the profiles of attendees can
give the company a better idea of fundamental characteristics that appear to attract institutional investors.
This information in turn can be used in further targeting
efforts.
Before going public, companies also need to consider
whether market conditions are well suited for IPOs. In
determining suitability, companies should consider
general stock market conditions, industry market conditions and the frequency and size of IPOs in both the
industry and the broader market.
Also, companies should take steps to ensure that institutions likely to be interested in the company are invited
to the roadshow presentations. Providing management
with profiles of attending institutions in advance of the
meetings can help them prepare for certain questions
and ensure that institutions' information needs are met.
Following the roadshow, sell-side analysts can still play
Copyrights Thomson 2006.
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an important role in communication efforts by being
available to respond to investor inquiries about the company and its industry. Because analysts are still allowed to
participate in a potential deal's due diligence leading up
to the offering, they are knowledgeable about the deal.
Moreover, while they can no longer market deals alongside bankers and management, they are still allowed to
answer investors' questions about any given deal.
implemented the infrastructure for effectively conveying that story to the investment community. Moreover,
time is needed to allow the company to start behaving
like a public entity well before becoming one.
As such, companies wishing to maximize their chances of
a successful public company are encouraged to do the
following in advance of the offering:
Start preparations early and view the IPO as a
process, rather than a one-off financial event.
Develop a good business plan.
Ensure that the company has solid growth
prospects and a track record of performance
along both financial and non-financial measures.
Define key metrics to describe performance and
outlook. Set realistic and compelling expectations for future performance.
Ensure that the company competes well with its
peers along both financial and non-financial
measures.
Choose strong, reliable internal and external IPO
teams.
Implement the systems and processes common
to public companies such as strategic planning,
accounting and reporting, investor relations and
internal controls.
Employ an investor communications function
and use it to build market awareness of the com
pany while also keeping in mind rules governing
acceptable communications in the period surrounding the IPO.
Resolve corporate governance and accounting
issues.
Assess whether market conditions are suitable
for going public.
Who's running the company while the boss is away?
It goes without saying that the company must continue to perform well during the long-running IPO
process. However, this objective can be complicated by
the substantial involvement required of C-level executives in certain steps of the pre-IPO process, such as the
road show. As such, it is imperative that the CEO and
CFO feel comfortable delegating significant responsibility to lower level management during periods in
which their time and energy are monopolized by IPO
preparations, which can be drawn out over a number
of months or even years.
After the IPO
Following the IPO event, companies must meet the operational requirements of being public and fulfill shareholders expectations. The communications strategy that was
put in place in the pre-IPO process should continue to
build the company's reputation and credibility in the
investment community. Companies should also seek to
update their strategic vision, stay competitive on financial
and non-financial measures and continue to grow.
Conclusion
Given the massive amount of work involved in succesfully taking a company public and the ramifications of a
failed IPO, private firms planning on going public need
to allow enough time to manage this transition properly. Time is needed to ensure that, prior to the IPO, the
company has a compelling investment story and has
Notes
1Ernst & Young. 2004. Ernst & Young Global IPO Survey - 2004.
2Bradley, D. , B. Jordan, J. Ritter. 2003. "The Quiet Period Goes Out With A Bang."
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Q&A with MasterCard Inc. (NYSE: MA)
Long before MasterCard launched its IPO in May 2006, the credit card giant functioned
like a public company, including SEC filings and SOX compliance. Heres what Barbara
Gasper, Senior VP of Investor Relations and Linda Kirkpatrick, VP of Investor Relations
had to say about the IPO experience.
How did you measure your IPO's success? And based on those benchmarks, how successful was it?
Barbara Gasper (BG): These days, probably the best short-term measure of an IPO's success is whether the
stock is still trading above the price where it launched, especially since the stock performance for many
recent IPOs has fallen off immediately after they're launched. MasterCard has stayed above its launch price
since Day One.
One of the longer-term measures of an IPO's success is to track how many of the targeted fundamental
long term investors who participated in the IPO are still holders after a period of time. For MasterCard, it's
too soon to comment on that, but it's something that we will be watching closely.
What steps did your company take to start behaving like a public company before the IPO launch?
Linda Kirkpatrick (LK): The first step we took as far as this evolution was to ensure that our global structure
was appropriate. In 2002, we merged with our European counterpart, Europay International and became a
private share company. By doing so, we made our company more global and aligned the interests of management.
In 2002, we also started filing with the SEC. Although our stock wasn't publicly traded, when we became a
"private share" company we had more than 300 shareholders (which were our Member Banks) and, consequently, we had to register with the SEC. We weren't listed on any exchange, but we acted like a public
company in almost every other sense. As a result, we started taking the necessary steps to achieve compliance with Sarbanes-Oxley. We actually complied with SOX 404 two years in advance of the deadline for
companies in our category.
How did Sarbanes Oxley influence your company's preparations for going public?
LK: While we had transparency with our financial results since becoming a SEC-registered company, achieving SOX 404 compliance demonstrated the continued strength of our reporting and governance process
and took us to a higher standard of internal control compliance. We have actually heard of smaller companies who had to delay their IPOs because they were unable to achieve the required level of compliance.
BG: Any company looking at going public needs to be sure it understands what the requirements are,
what may have to be done with the company's systems to be compliant, and determine whether or not
management is willing to live with those requirements.
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Q&A with MasterCard Inc. (cont)
Please describe your company's efforts to reach out to the investment community prior to going public?
(i.e. investment banks, sell-side, institutional investors)
LK: We aligned ourselves with investment bankers with whom we had worked before, both as customers
and advisors.
BG: In terms of roadshow statistics, we visited 20 cities, in 6 countries, over 13 days. We hosted 17 group
meetings, held 76 one-on-one meetings and met with over 800 potential investors. The bankers were pressing us to add more sessions (such as conference calls in the car between face-to-face meetings) but we felt
it was important to give management a little down time to recharge so we pushed back.
What challenges did you encounter in pricing the deal?
BG: There was a lot going on in the market around the time of our road show, so we had many factors to
consider when determining the final price. We launched our IPO with a target price range of $40 to $43 per
share. During the roadshow, we saw a combination of down market performance and peer valuation
declines. We also priced the same day Vonage began trading, which cast a shadow on any IPO's pricing.
After a lengthy discussion, we decided to price at $39 per share. Everyone was pleased when we closed up
$7 the first day and the underwriters decided to exercise the greenshoe on the very first day of trading,
which represented a 7.5% increase to the share count.
Prior to the IPO, did your company implement any strategic initiatives aimed at accelerating the company's
growth rate?
BG: The strategic initiatives that were in place were the ones that were most appropriate for the company's
long-term plans, and there weren't any special initiatives added around the IPO launch.
Did you take any steps while still private to prepare for handling publicity, whether positive or negative?
LK: We created an IR function, and we hired Barbara, who had many years of IR experience and had been
a professional IRO for many years.
BG: One of the first decisions a company needs to make is about the reporting structure of the IR function. Will it be part of the corporate communications function, or will it report directly to the CFO or CEO
as a separate but related function? In either case, IR and PR have to work very closely together to insure
consistent messaging among all audiences. At MasterCard, IR reports directly to the CFO, which is similar to
other companies where I've worked.
LK: We also spoke with CEOs and CFOs of other public companies who had recently completed IPOs to get
their thoughts and perspectives about how we should be preparing ourselves for the change. It was an
internally-initiated effort to speak with people who had been there and done that.
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Q&A with MasterCard Inc. (cont)
What advice did you receive?
LK: Executives who spoke with Bob [Robert Selander, president and CEO] and Chris [Chris McWilton, CFO]
told them that they now needed to carve out a portion of their time, which previously hadnt been necessary, for the investment community to ensure that analysts and investors are apprised of our company's
strategy, business model, and how we are moving forward.
BG: Senior management needs to realize that this is an additional time commitment that they need to add
to their workload. The amount of time will vary depending on what's going on with the company at any
given time. There are times when they have to play a more active role, and times when they can step back
a little. But either way, it's going to be more of a time commitment than just a couple of hours per quarter.
What lessons did you learn during your first earnings release as a public company (Q2 2006)?
BG: MasterCard made a decision to hire someone with previous IR experience, so I've been through this
before. I've headed up IR functions at companies such as Ford, Lucent and Raytheon. Then, I was lucky
enough to get Linda, who has been with the company for nine years, to work with me. So together, we
have a good combination of IR and company experience. If a company decides to identify an internal candidate to assume the IR responsibilities, that person should reach out to their outside advisors and professional sources such as NIRI in order to better understand what the IR function entails.
In terms of the earnings release process, it's important to set up a schedule to ensure good coordination
between Investor Relations, Corporate Communications, Finance and Legal because everybody's working as
a team. Make sure you brief your executives on what they can expect: what the conference call is going to
be like, who and how many people are expected to be on it and what some of the likely questions will be.
When you are preparing for your earnings announcement and conference call, try to anticipate what the
big issues are going to be for the investment community so that you can pro-actively address them rather
than waiting for the issue to come up in Q&A.
What advice would you give to a colleague at a company that is considering an IPO now?
BG: To some extent, it was easier for a well-established company like MasterCard to do this than it would
be for a start-up company. MasterCard is a 40-year old business with a very well recognized brand.
Because of its private share structure, we have been required to make SEC filings since 2002. The bottom
line is the more prepared you can be, and the more you can function like a public company before you
actually do an IPO, the easier it will be. But there is a big commitment that management needs to understand (in terms of time, resources, in reporting requirements) before making the decision to go public.
Copyrights Thomson Financial 2006.
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Q&A with MasterCard Inc. (cont)
The other piece of advice is don't rely only on what the investment bankers tell you. Do what MasterCard
did and go out and talk to CEOs and CFOs yourself. Get some first-hand feedback from companies that
have gone public in the last couple of years. What did they learn having just gone through the process? It's
good for senior management to hear it from their counterparts at other companies.
About the Company
Profile: MasterCard Incorporated advances global commerce by providing a critical economic link between
financial institutions, businesses, cardholders and merchants worldwide. As a franchisor, processor and advisor, MasterCard develops and markets payment solutions, processes close to 14 billion transactions each
year, and provides industry-leading analysis and consulting services to financial institution customers and
merchants. Through its family of brands, including MasterCard, Maestro and Cirrus, MasterCard serves
consumers and businesses in more than 210 countries and territories.
Date Went Public: May 25, 2006
Proposed Offer Price: $40.00 to $43.00
Actual Offer Price: $39.00
First Day Open: $40.30
First Day Close: $46.00
Shares Offered (mil.): 61.52
Offering Amount (mil.): $2,399.00
Post-Offering Shares (mil.): 79.63
Copyrights Thomson Financial 2006.
Performance MattersSM
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Q&A with Build-A-Bear Workshop, Inc. (NYSE: BBW)
Two years after Build-A-Bear's $172 million IPO, heres what IR Director Molly Salky had
to say about the company's process for transitioning to public status.
How did you measure your IPO's success? And based on those benchmarks, how successful was it?
Not only was the offering successfully priced in a very busy IPO market but the deal was multiple times subscribed two days before pricing, justifying upsizing the entire offering and an increase in price range. The
entire offering was upsized by over 10% (the $172 million includes the greenshoe). The pricing range
upsized by $2 ($18 at the midpoint), and shares were priced at $20, the high end of the revised range. Also,
one-on-one meetings had a hit ratio of 92%. Today, we have eight sell-side analysts providing active
research coverage.
What steps did BBW take to start behaving like a public company before its October 2004 IPO launch?
From the founding of BBW in 1997, the long-term plan was to become a public company; therefore, from
day one the company structured and grew its infrastructure with that goal in mind. Strategic planning,
finance and accounting systems, IT infrastructure, etc. were in place. The position of President and Chief
Operating Officer was established about six months prior to the IPO. The executive selected to fill this position possessed Wall Street experience. Other key personnel additions related to the IPO included general
counsel, IR director and SEC reporting director.
Please describe your companys efforts to reach out to the investment community prior to going public?
Relationships were established with five investment banking firms - AG Edwards, Citigroup, CSFB, JP
Morgan and T. Weisel. Prior to the IPO several meetings were held with the sell-side analysts at these firms.
Via the IPO roadshow, the company was introduced to over 235 high quality institutional investors. These
meetings were planned and organized by the investment banking team.
Prior to the IPO, did BBW implement any strategic initiatives aimed at accelerating the company's growth
rate?
The company made some strategic investments including new retail concept development begun in the fall
of 2004 (friends2Bmade) and national TV advertising begun in early 2004.
In your view, how important are non-financial measures in institutional investors' investment decisionmaking processes?
On a scale of 1 (low importance) to 10 (high importance) - about a 7.5.
Copyrights Thomson Financial 2006.
Performance MattersSM
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THOMSON FINANCIAL
Q&A with Build-A-Bear (cont)
How did Sarbanes Oxley influence your company's preparations for going public?
Our systems and controls were strong; however documentation of internal controls was not as complete as
necessary for Sarbanes Oxley compliance. We utilized outside resources to assist us with the documentation process and ultimately to assist us with testing and evaluation of controls.
Did you take any steps while still private to prepare for handling publicity, whether positive or negative?
We established a company disclosure policy, disclosure committee and Disclosure Committee Charter. BBW
had always maintained an active marketing/public relations program. Review and approval processes were
put into place to ensure that the marketing/PR teams' activities received proper review and approval prior
to public statements/releases.
What were some of the most crucial steps your company took in the pre-IPO process that you feel made
the company's IPO successful?
Financial and brand building success prior to the IPO was a big contributing factor. Telling the company
story was also key. We focused on key BBW differentiating characteristics, such as the store contribution
model, strong and stable merchandise margins, store execution and the importance of the 'experiential'
component. A broad based and successful IPO roadshow upon which to build continued investor communications efforts was also important.
About the Company
Profile: Build-A-Bear Workshop provides a make-your-own-stuffed-animal interactive retail-entertainment
experience. As of July 1, 2006, the company operated over 255 Build-A-Bear Workshop stores in 44 states,
Canada, the United Kingdom and Ireland, and had 22 franchised stores in international locations.
Date Went Public: Oct 28, 2004
Proposed Offer Price: $18.00 to $20.00
Actual Offer Price: $20.00
First Day Open: $27.00
First Day Close: $25.05
Shares Offered (mil.): 6.80
Offering Amount (mil.): $129.20
Post-Offering Shares (mil.): 19.55
Copyrights Thomson Financial 2006.
Performance MattersSM
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THOMSON FINANCIAL
IPO Preparation Checklist
Although a number of company-specific factors may influence the IPO preparation process, here is a general checklist of recommended pre-IPO tasks that can help to maximize the chances of a successful IPO.
Start preparations early (several months to several years before the planned offering).
Behave like a public company by implementing
the following systems and processes:
Strategic planning
Accounting
Reporting
Investor relations
Internal controls
Executive compensation
Create a reliable IPO team, including underwriters, an IR professional, public-oriented auditors, outside legal counsel, and a stock transfer agent.
Have a compelling investment story.
Prepare a comprehensive business
plan.
Have strong growth prospects.
Have a track record of financial and
non-financial performance.
Be in a position of competitive
strength along both financial and
non-financial measures.
Have clear understanding of how
company compares to peers.
Map out and implement improve
ment initiatives and/or strategic
transactions.
Minimize window dressing.
Pay close attention to corporate governance.
Address any questionable accounting
policies.
Ensure compliance with SarbanesOxley and other regulations.
Build an investor communications function and
market awareness.
Hire an IR Professional.
Start publishing quarterly and annual
financial reports.
Implement broad outreach efforts.
Press Releases
Company Web Site
Media Coverage
Advertising
Coverage in trade publications
Participation in trade shows
Implement targeted outreach efforts.
Target buy-side firms.
Target sell-side firms.
Conduct perception interviews with
the sell-side.
Attend brokerage-sponsored industry
conferences.
Comply with rules for communicating
during registration period.
Prepare an effective roadshow.
Gear presentation to the audience.
Invite institutions that are likely to be
interested in company.
Track meeting attendance.
Prepare management for investor
scrutiny during presentation.
Assess market climate for IPOs.
General stock market conditions
Industry market conditions
Frequency and size of IPOs
Frequency and size of IPOs in industry
Copyrights Thomson Financial 2006.
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