New York, London, Paris, Munich: Fear and loathing on the IPO trail

First published in Business 2.0 magazine (UK), July 2000

“Place your bets for the floatation roadshow, financing’s answer to the Grand National. It’s not so much about finishing first, more about simply making it to the line.”

It’s late May, and two Internet executives are mentally and physically preparing themselves for the businessman’s version of an Ironman competition. One is nervous, and the other is cocky as they get ready to embark on what, at the best of times, is a rocky, rigorous ordeal and what, in the current climate of stock market decline, seems downright masochistic. They are embarking on their companies’ IPO roadshow. They hope to encourage investment banks and the public to pour hundreds of millions of pounds into their fledgling operations.

But it’s not clear whether either will make it to the end. John Palmer, a veteran of similar fundraising quests, projects an air of confidence. ‘It’s a lot of fun, it’s invigorating,’ he says as he gets ready to float collaborative buying Web site, of which he is chief executive. He will soon be in for a surprise; this is a race where being a favourite does not guarantee a place among the finishers.

Newcomer Simon Franks is perched on a sofa in a laid-back office near Covent Garden in London. But despite his Soho-style black suit and tie with dark blue shirt, he looks tense and a little haggard as he answers (or dodges) questions from journalists. ‘I’m not going to tell you how it works,’ he says in response to one.

But he is clearly nervous and when Business 2.0 asks him ‘What is all this like?’ he responds with total conviction. ‘It’s horrible,’ he admits. Franks, the chief executive of video-on-demand firm Filmgroup plc, is readying himself to ask Europe’s financiers for a cool £81 million. Place your bets for the floatation roadshow, financing’s answer to the Grand National. It’s not so much about coming first, more about simply making it to the line.

Have you ever applied for a mortgage? Have you had the bank staff nose around your personal life, knowing you must answer all their questions, however impertinent? Multiply that by a thousand, add on three zeroes, and you have the pre-floatation roadshow, a gruelling event that tears a company’s top two or three managers away from daily business to submit themselves to cross-examination by financial institutions.

Both Filmgroup’s Franks, and John Palmer are preparing to start this tour in difficult conditions, as technology indices plummet, and several potential floatations have already withdrawn from the race. A rival of Filmgroup, Yes TV, will succumb a few days after Franks’ expression of horror.

But’s Palmer is champing at the bit, his confidence buoyed by his past experience in raising private placement funds for Letsbuyit. ‘I like to sell, and it’s selling at its best,’ he says. ‘You’re selling the concept, the company, that it’s a worthwhile investment.’ His eight-day tour starts in Frankfurt, on whose Neuer Markt exchange Letsbuyit will float. It then takes in the UK, the Netherlands, Italy and France (in a single day) and Scandinavia. ‘I’ll be doing about eight presentations a day,’ he says. ‘Analysts can ask very blunt questions. Sometimes you have to get aggressive back.’ So doubtless he will want to go and collapse during the middle weekend? ‘Actually, I’m going to the Grand Prix in Monaco,’ he says.

Starter’s orders

If the experience of other Net companies counts, then Palmer and Frank can expect, among other things, a costly ordeal. The average pre-floatation roadshow for a substantial UK-based company lasts about two weeks, taking in financial centres across Europe and often a few in the United States. A very thorough roadshow would take 10% of the floatation’s costs, according to Andrew Edmond, head of global equity syndicate at merchant bank Dresdner Kleinwort Benson. These total costs start at £75,000, he adds, and can rise to several millions. Jim Rose, chief executive of pan-European auction site, reckons he spent ‘a low six-figure dollar sum,’ on a two-week tour trans-Atlantic last autumn. Floatation costs at T-Online, the Deutsche Telekom-controlled Internet service firm, accounted for most of a £13.7 million pound loss in the first quarter.

It is possible to launch the shares for less, if you restrict the promotion to one financial centre. The three top executives of estate-agency site spent the best part of two weeks at the Stakis hotel in Islington prior to listing on London’s Alternative Investment Market in February, meeting 21 institutions. Joint chief executive Steve Butcher reckons they spent just a few thousand pounds on the roadshow, such as it was. ‘The only costs were our own board and lodging costs,’ he says. ‘Oh, and taxi fares.’

Most roadshows star three of the company’s managers, normally the chief executive, the finance director and the chairman or chief operating officer. The aim is to deliver three punchy presentations lasting half an hour in total, leaving the rest of the standard hour slot for questions from the financiers. Best not ask for more. ‘Institutions are fairly compartmentalised with their day,’ explains Edmond, at Dresdner Kleinwort.

Like most wannabe sporting heroes, the aspiring floatee has to go through some tough training. Edmond puts firms he is preparing for the roadshow through a couple of days of training, including getting his own bank’s sales staff to give the management team some practice. ‘We run through the rigorous questioning they will experience, and sometimes it is a culture shock,’ he says. ‘You can get the chief executive faced by a teenage scribbler questioning his whole strategy.’


And they’re off. QXL’s Jim Rose, who launched stock simultaneously on both the London and Nasdaq exchanges last October, is slightly hazy about how many times he presented the company’s story – ‘I think we did 76 or 83’ – but he remembers visiting London, Glasgow, Edinburgh, Paris, Geneva, Zurich and Frankfurt. Oh, then Milan, Amsterdam, New York, Boston, Denver and San Francisco. In two weeks. ‘We probably got up at 5:30 or 6 in the morning, and worked until 11 at night,’ Rose says. ‘It’s an exhausting, kind of a strange feeling,’ he adds. ‘If you thought about it, you would never do it. But it is an exhilarating, once-in-a-lifetime experience.’

Brian Gunn is chief executive of ecommerce consultancy Nettec, now listed on the London Stock Exchange. ‘We floated on April 10, but all the pain was in March,’ he says, with the word ‘pain’ in underlined and in italics. ‘We did Paris in the morning, flew to Frankfurt and Zurich in the afternoon, flew to Milan, flew back to London.’ He has to think about the order. ‘It should be indelibly printed on my mind,’ he says. The grand tour also included Stockholm, Amsterdam, Dublin, Edinburgh, London, Boston and New York, an itinerary dictated by Nettec’s bank for the transaction, Salomon Smith Barney.

Gunn describes an oxymoronic mix of sensations: ‘It was as strange situation, as it was both tiring and stimulating.’ The schedule didn’t leave much time for relaxation: ‘You don’t get to see the sites of Paris or Zurich,’ he says. Instead, Gunn, his chairman Jeremy White and finance director Fraser Park – ‘We were the three musketeers, I’m the good-looking one,’ comments Gunn – had to improvise their own style of tourism to help them keep their bearings.

‘What interested me was the different style of buildings,’ he says. ‘In London, there is a lot of marble palaces,’ adding that the same is true of Paris. ‘In the Netherlands, it’s very businesslike – the Dutch are quite parsimonious. The buildings are nice and large, but not particularly ostentatious.’

And there are other ways to place yourself – just listen to the bank staff. ‘The Germans are very thorough and formal,’ says Gunn. ‘The Swedes are very knowledgeable about the Internet. The French are fairly inscrutable, as per normal.’ Gunn, a Scot, demurs from offering an opinion on London’s financiers. Other tour veterans say there is little difference between the financial centres. ‘They are all blue-chip institutions,’ says QXL’s Rose. The biggest difference for him was adjusting his presentation between the countries where QXL had launched, and where it had not.

Rose can offer an insight into another tension-reliever. ‘You have some jokes, making fun of people’s personal habits,’ he says. One of the firm’s advisers had told them that the first rule of financing is that a company should get money when it can, not when it wants to. ‘We changed that to, the first rule of the roadshow is to go to the bathroom when you can, not when you have to. It’s stupid, but it’s pretty quickly appropriate.’.

Rose says one of the toughest things is keeping the firm running in the absence of most of the top managers. ‘We all had mobile phones, and between meetings we would have a few minutes on them. We’d be dealing with the office late at night and early in the morning.’

All the roadshow veterans say how much confidence they had in those they left behind – they needed it. Online travel agency’s co-founders, Brent Hoberman and Martha Lane Fox, must have it in spades – executive vice-president Charles McKee joined from Virgin Atlantic all of three days before they left for their 10-day floatation roadshow. The firm clearly applies its just-in-time sales technique to recruitment too. McKee effectively started work for Lastminute while holding down the job at Virgin Atlantic. ‘I spent a lot of time late at night and on Sundays over here, going through checklists,’ he says.

He thinks the roadshow can be a positive experience for those left behind: ‘It’s an opportunity for the birds to fly out of the nest,’ he says. But you can’t see the boss checking your work. ‘Martha and Brent would jump on the site in the morning from their hotel, look around, then say “This page looks a bit funny”,’ McKee recalls.

‘It’s in the nature of any founder – there is a very long umbilical cord to that which you have given life.’

The purse

For riders who complete the course, there’s a series of generous prizes. The company gets its big pay-day – or at least it used to (the share price for many recently public companies, like Lastminute, has been diving below their initial float level). The existing shareholders – probably including the roadshow participants – suddenly find out how much those shares are really worth. Then, the world notices they exist, financial journalists being notorious for ignoring companies that don’t have share prices and annual general meetings as an aide-memoire to their existence.

Least important but possibly most enjoyable, the chief executive gets to see the shares being traded – I list, therefore I am. If the company is floating on the New York Stock Exchange, one of the few bourses left with a trading floor, it throws a party. In 1998, ‘predictable’ German software firm SAP, one of the few tech stocks to list in New York, dumped a load of sand and beach balls on Wall Street and booking a band to perform sundry beach-oriented numbers to passing masters of the universe. Chief executives don’t have to go these lengths – and fortunately for the denizens of Wall Street, most don’t – but at least at the New York Stock Exchange they can see the first trade taking place. The problem is that tech firms mostly use exchanges where everything happens over the networks. So the boss goes to where the action happens – a bank’s trading floor. These are basically over-equipped call centres, with worse-behaved and very slightly better-paid operators.

They have lots of phones, lots of screens and big dot-matrix price boards. On October 7 last year, Jim Rose went to the Credit Suisse First Boston call centre/trading floor, at the Canary Wharf complex in London’s Docklands. QXL launched its shares at 195p on London, and $16.15 for the Nasdaq-listed American Depositary Receipts – a device that allows US citizens to trade foreign shares through US markets (the apparently odd exchange rate is due to each ADR containing five London shares).

It was a volatile market, as usual, and QXL rose by 18 percent on its 1:30pm opening. Then it dropped back to 190p, before climbing back to 207p. ‘It’s amazing,’ Rose recalls. ‘All the things you have put together for a year and a half… you don’t know what to expect. It’s definitely a buzz, to see how people are voting.’ Because that’s what it is – the race’s result is decided by a poll of the crowd, which starts now and continues indefinitely.

It’s a tough job, but it’s got to be done. So how do veterans reckon the roadshow can be made more bearable? ‘I think you can gauge investor’s interest by the quality of the questions,’ says Nettec’s Brian Gunn. However, don’t expect any certainty. ‘We always asked if they were  going to buy the stock, but they were very polite and didn’t give too much away.’

What about the current market downturn? ‘If the business opportunity is a solid opportunity, I’m sure the City will be receptive,’ says Steve Butcher, at Easier. ‘If there is a difficulty, I suspect a number of institutional managers may say they won’t invest until the market calms down.’

‘Be mentally prepared for the worst,’ advises QXL’s Rose. ‘The whole procedure is like running a marathon, not a hundred-yard dash. It’s tremendously late nights for months before. Definitely, pace yourself.’

Rose adds: ‘I used to play American football. You would play and work hard, do two training sessions a day. This is very much like playing a season. You find out who has got stamina.’

Gunn has some final tips. ‘Sometimes a change of suits is important, and make sure you have the right laundry in the right city – a couple of times we almost caught up with our bags. But enjoy it – it’s part and parcel of taking the company public. I wouldn’t have missed it for the world.’

One week later, Business 2.0 calls’s John Palmer, in Frankfurt for the first day of his roadshow, expecting to hit his voicemail. He answers. He must be in between presentations.

‘Have you seen the news?’ he asks. ‘We had a board meeting at 10pm last night. We’ve delayed. It’s a tough market, just horrible market conditions.’ That means the whole thing – the tour, the probing questions, the long days, the triumphant first trade, the millions of euros – is suspended. has fallen at the first, just because the going was too soft. The firm will now look for savings throughout its business, and may have to cut jobs, while seeking an injection of private funds.

‘You gear yourself up for these things,’ Palmer says, sounding rather gutted. ‘It’s a let-down. You prep yourself to get into the excitement, into a strong selling position, then the rug is pulled from under you.’

He’s still in Frankfurt. ‘There’s never spare time. We’ll be focusing on improving our business,’ he says. And when will he try again? ‘You really can’t tell, because it’s dependent on the market. It’s 5% up today, it could be down tomorrow.’

‘Oh, are you still going to the Monaco Grand Prix this weekend?’

‘I’m not sure now,’ Palmer replies. For now, racing is cancelled, at least for Palmer. As Business 2.0 went to press, Filmgroup was pressing ahead with its roadshow. Perhaps shaky nerves are a requirement on the combative IPO trail.

(Note: Filmgroup dropped its floatation days after I filed. Letsbuyit eventually returned to the markets and floated successfully a couple of months later, but for much less than it had originally planned.)

Copyright SA Mathieson 2000