Anatomy of an IPO Featured

9:51am EDT July 22, 2002

Ron Weinberg stood on the floor of the New York Stock Exchange flanked by his partner, Norm Harbert, and Hawk Corp. executive vice president Jeff Berlin. Part of him waited anxiously for the opening bell to ring and Hawk’s stock to begin public trading.

“When you’re on the floor there, there’s both a sense of history and destiny,” Weinberg says.

But another part of him was simply relieved that the grueling two-week road show leading up to the IPO had reached its climax. “The road show is just a brutal exercise, where the underwriters get management out in front of as many people from the brokerage houses as they possible can,” he says.

That was May 12, 1998. Weinberg, Harbert and other Hawk execs spent the two preceding weeks telling their stories and explaining long-range strategic plans in the hope that they could convince institutional investors their business was a good investment and that they should buy shares for their clients as part of the public offering.

Hit the road

On a cool spring day in 1998, Ron Weinberg stood in front of 30 European investment bankers in Geneva, Switzerland, presenting a slide show on Hawk that described the company’s plans to increase global market share.

“I flew over the night before on the Concorde, presented over lunch, then flew back to Boston that night,” says Weinberg.

Across the Atlantic, Harbert and Berlin entertained Detroit’s top investment bankers with a similar presentation.

“Ron had the fun part of the job,” says Harbert.

Those two trips were pit stops on a road show that took the trio from the East Coast to the Midwest, then to the West Coast, and finally back east for a meeting with premier New York and Boston investment banks.

“Part of the excitement,” says Weinberg, “is just the logistical intensity of it, because you’ve got a selling team of underwriters who are constantly trying to get the institutions on the phone and book appointments. You’re constantly moving and they’re squeezing in everything they can.”

Back-to-back meetings

It’s been said that the moment your prospectus is printed, the starting gun sounds and it’s a mad sprint to the IPO finish line.

“The most interesting thing in the world of finance is that it’s really a bit of a rite of passage for managements,” says Weinberg. “It is physically brutal because you’re meeting people day and night. The drama of it is the pace and the intensity. For many management groups, it’s a very different kind of thing to be traveling around like that and selling yourself. You get very intense questions over and over again.”

The daily pace is grueling. Your first appointment may begin at 7 a.m. in front of a group of institutional investors in St. Louis. That same day, says Weinberg, may end with a dinner meeting in Chicago with the fourth group of investors you’ve seen.

Filling the book

“The whole exercise is watching the book,” explains Weinberg.

The book is a compilation of how many shares of stock investment houses indicate they’ll buy. The goal is to fill the book with two to three times the number of shares of stock your company will issue in its public offering.

“After we’d visit the institutions, they’d give an indication that they want stock,” Weinberg continues. “The big buyers would say they’re something like 10 percent buyers, the smaller firms would want less, and the whole time, the brokerage firm is building the book of what’s expected to be sold in the IPO.”

Setting the price

While the underwriters are building a book, there’s a second scenario developing — price talk.

“The underwriters are saying the stock’s going public between $17 and $19 and the institutions are playing a cat-and-mouse game,” explains Weinberg. “If that’s the range the underwriters are saying, the institutions are talking about $16 to $18. Then the underwriters come back and let those big financial buyers know that it’s a filled book and that they should up their offer because the stock’s going to come in around 17 or 18.”

But all of this, explains Weinberg, isn’t the official pricing. That occurs at the pricing meeting, on the last day before the public offering, when the road show closes.

“In the parlance of the old Wall Street days, the underwriters present us with an offer,” says Weinberg. “They say, ‘We will take your company public at $17,’ and ask us to sign the documents approving it. But the less formal discussion is when they explain why they can do it for that price; they show us the book, tell us who’s talking about the stock and that we should want it to go up a little bit the next day when the stock starts trading publicly.”

On the NYSE floor

Two minutes before Hawk’s stock began public trading, the drama truly began. The specialist on the floor, the person whose job it is to analyze all the orders coming in from different brokers and set a price, was running simulations on a computer.

“Based on how it looks, he sets the actual opening price,” Weinberg says. “He told us that they were opening trading in two minutes at $19. Then he counted down to one minute. Finally, bang, the opening bell went off.”

While the event wasn’t Weinberg’s first time watching one of his companies go public, the feeling was the same.

“I was on the floor when we started trading, and it was pure excitement.”