Taking The Economic Pulse.

FEI put on a pair of dynamic and informative one-day conferences in late February in San Francisco, "Driving a Successful IPO" and the annual Treasurers Conference. Each offered attendees a chance to hear from industry experts, advisors and company executives about trends, best practices and new developments in the respective areas.

The IPO conference explored the state of the IPO market -- practically moribund -- and offered advice to finance officers and other top executives about what to expect and how to go about working with investment bankers, investors and others in the capital markets. For instance, in his keynote address, Daniel Case, chairman and CEO of J.P. Morgan Chase H&Q, emphasized that liquidity is generally adequate, and that when it isn't, that's generally because of perceived risk.

Case noted that there's a high correlation between the stock market and IPO activity, and with the stock markets depressed, the IPO market has followed. January 2001 was the slowest month in the IPO market since January 1980, he observed, and IPOs have fallen to just 6 percent of new issue financing on an annualized basis for this year, down sharply from 30 percent in 1999 and 25 percent last year.

But Case painted himself as a cautious optimist, arguing that business cycle times are getting shorter. He added that coming to market in a quiet time can be a good thing, both for company visibility and for getting good distribution of the new stock. Some of the biggest technology firms today, in fact, went public in slow times, he said.

In a succeeding panel, Timothy Draper, founder of Draper Fisher Jurvetson, a venture capital firm, noted that VC firms tend to see IPOs as a beginning and not an end, adding, "We're often the last ones to sell." He outlined a series of requirements for success, as well as red flags. The requirements include: leadership in the field, awareness of the company in the marketplace, a welcoming response by the markets and confidence in ongoing profitability for two to three quarters. Red flags include: a sense that the founder wants to bail out, a company's insistence that it needs to go public right now and a merger before a public issue that may itself raise problems.

Gordon Stitt, CEO of Extreme Networks, chronicled the history of the firm's financings, which were initially private. In 1998, when the firm finally did its IPO, it faced a market that hadn't seen a data networking firm go public in more than two years. Stitt argued that an IPO should be undertaken to accelerate growth -- not to give executives a chance to cash out.

Robert Walker, CFO of Agilent Technologies, the big equipment maker spun off from HewlettPackard, noted that the prime motivation for the IPO was to allow the Agilent people to concentrate on their own businesses and objectives and not get lost in the far larger agenda of HP. Indeed, he said it was often hard for the Agilent people to know if anything they did "moved the needle" at HP.

In a panel discussion on marketing, "roadshow" issues and pricing, Larry Prendergast, executive vice president/finance at LaBranche & Co., a specialist firm on the New York Stock Exchange, argued that it's critical to negotiate the "spread" with the investment bankers up front. He said that it's worthwhile to split roadshow efforts into multiple "teams" to maximize exposure, and to concentrate on "buy-and-hold" investors like mutual funds, not investors who might be inclined to "flip" the stock on its first day of trading.

Liz Murray, chief financial officer of executive recruiting firm Korn/Ferry International, traced the details of the company's IPO, including the alternative options considered and the "buy-in" required from senior partners -- in effect, an "internal roadshow." She noted that the offering realigned the equity participation to give incentives to top performers.

Fred Lane, a managing director with CFSB First Boston, conceded that "there is a lot of poker playing" in the pricing of a transaction. Lane argued that "investor fatigue" is a factor in the current market, following a crush of IPOs in prior years, and offered advice about where to take roadshows. Starting in Europe can be a good idea, allowing management to hone its message, he said, and Boston is a critical stop, as it's home to major mutual fund companies like Fidelity Investments, Wellington and Putnam. "If you're not successful in Boston, you're not going to have a successful IPO." he said.