Tag Archives: IPO

PHOTO BY LILLIAN REID, AZ BIG MEDIA
Brian Mueller is the CEO of Grand Canyon University.

Mueller uses hybrid model to turn GCU into a winner

Brian Mueller has created the most successful business model in education. When he took over as Grand Canyon University’s CEO in 2008, there were less than 1,000 students on campus and about 10,000 online. Today, GCU has 8,500 students on campus and 50,000 online, with a new East Valley campus coming in 2015. Mueller has also expanded GCU’s science, technology, engineering and math offering with the launch of its College of Science of Engineering and Technology.
Az Business magazine caught up with the Antelopes’ biggest fan to find out how he helped GCU make the grade in business and with the books.

Az Business: How has the business model for higher education changed?
Brian Mueller: If you think of the 1970s, 1980s and 1990s, universities built their reputations based on the quality of their traditional-age students. Then, a market opened up with adults who wanted to go back to college and earn degrees while they were working and raising families. Most of the universities that ended up serving those students were private, for-profit universities and there was far greater demand than supply. You could grow as fast as you wanted and charge whatever you wanted and people were willing to pay for that convenience.
Everything changed in 2008. Tax dollars that helped fund public universities were in decline and donor bases dried up. Those mid-tier universities were forced to look to the adult market, which flipped the supply-demand in favor of the working adult student.

AB: How did you use that change in the marketplace to help GCU?
BM: I came here in 2008 because I saw an opportunity to create a hybrid campus — a strong traditional campus with a strong component of working adults — that shared a common infrastructure and spread the costs across two students bodies. By creating a hybrid campus, we were able to lower the price point significantly. After scholarships, the average GCU student pays $7,800 in tuition. Most students at private universities pay between $25,000 and $50,000 a year.

AB: How did you make that happen so quickly?
BM: I believed if we could get an infusion of funds, we could create something special. We came in June 2008, went public in November, got an infusion of $254 million, put huge dollars back into the ground campus and went to work building a brand based on the excellence of the education.

AB: How did you get investors to buy into the IPO in 2008?
BM: We were the first company to go public in three months, but I had been at Apollo Group for 22 years and was the CEO of the University of Phoenix Online when we went public as a tracking stock between 2000 and 2004, which turned out to be the most successful tracking stock in the history of Wall Street. So I knew those guys and they had made good dollars with us before. They didn’t completely buy the business model. Nobody believed that you could be successful or profitable with traditional students because it would always be a money loser. But the truth is our level of profitability is now about the same on both sides.

AB: What has been your biggest professional challenge?
BM: There were not many people doing online education in 1997, but we saw it was going to be huge. We had to fight the traditional academic community, who said, “How dare you deliver education online? Students need to be in a classroom with a professor.” The push-back was so strong that we just needed to push through it, accept the criticism, make counter-arguments and keep moving forward. Those same people who were yelling at me in 1997 are all trying to do the same thing now.

AB: What are your goals for GCU?
BM: Ten years from now, we will have 25,000 students on our physical campuses. Online, we will have 80,000 or 90,000 students. We want to be a university that provides excellent education, but in a values-based context and environment. And we want to operate as a company that helps transform the West Valley.

Go Daddy founder and former CEO Bob Parsons is resigning as executive chairman to spend time on other ventures.

Scottsdale’s GoDaddy files for IPO

Web hosting company GoDaddy is filing for an initial public offering.

The company known for its racy Super Bowl commercials says it has 12 million customers and is the largest provider of website domain names.

GoDaddy Inc. also said Monday that company founder and former CEO Bob Parsons is resigning as executive chairman to spend time on other ventures. He will stay on the board. Go Daddy plans to name a new chairman in the next few months.

The Scottsdale company has posted losses the last three years, with a deficit of $199.9 million in 2013. Its annual revenue grew 24 percent to $1.13 billion.

GoDaddy says it plans to raise up to $100 million, but that is likely to change as bankers gauge investor interest.

ulterapy-treatment-gives-you-younger-looking-skin-video

Ulthera files for $86 million IPO

Ulthera, which sells ultrasound energy systems for the non-invasive lifting of eyebrows and skin around the neck, filed on Monday with the SEC to raise up to $86 million in an initial public offering.

The Mesa-based company, which was founded in 2004 and booked $82 million in sales for the fiscal year ended December 31, 2013, plans to list on the NASDAQ under the symbol ULTH. J.P. Morgan and Citi are the joint bookrunners on the deal. No pricing terms were disclosed. (1)

Ulthera, Inc. is a global medical device company focused on developing and commercializing technologies for aesthetic and medical applications. The company’s signature technology is the Ulthera® System, which is the first and only energy-based device that is FDA-cleared for use as an aesthetic treatment – the Ultherapy® procedure – that non-invasively lifts the eyebrow and skin on the neck and under the chin.

The company received its third FDA clearance in January of 2013 for its ultrasound platform device, the Ulthera System, has been cleared by the Food and Drug Administration (FDA) to visualize the dermal and subdermal layers of tissue during the non-invasive lifting treatment, Ultherapy.

This third FDA clearance follows the first two – in Sept. 2009 and Oct. 2012 – which cleared the Ulthera System to non-invasively treat the face and neck with specific, first-and-only indications to lift skin on the neck, under the chin and above the brow.

Sheryl Palmer

Taylor Morrison debuts as publicly traded company

Shares of Taylor Morrison Home Corp. are rising in its debut as a publicly traded company. The homebuilder’s entry on the New York Stock Exchange comes on the same day that another homebuilder filed for an initial public offering, further proof that companies are riding the continued housing recovery back to the public markets.

Taylor Morrison’s stock gained $1.27, or 5.8 percent, to $23.27 Wednesday morning. The initial public offering of 23.8 million shares was priced at $22 each, the high end of its expected range.

The company’s IPO follows homebuilder TRI Pointe Homes Inc. in January, real estate investor Silver Bay Realty Trust Corp. in December and real estate services provider Realogy Holdings Inc. in October.

And on Wednesday William Lyon Homes said in a regulatory filing that it plans to raise up to $200 million from a proposed IPO. It did not disclose how many shares would be in the offering, or what the expected price range would be.

Recent data has shown a strengthening housing market. Job gains and mortgage rates near record lows have helped lift home sales, more than six years after the housing market began to collapse.

Taylor Morrison’s offering raised $523.6 million. The banks managing the deal may buy more 3.6 million shares, adding to the proceeds. The company said in a filing with the Securities and Exchange Commission that after the IPO it plans to sell up to $500 million in debt for general corporate purposes.

The Scottsdale company operates its namesake brand and Darling Homes in the U.S. and Monarch in Canada. It booked $1.44 billion in revenue last year and closed on 4,014 homes. The company sells homes ranging from $120,000 to more than $1 million, targeting first- and second-time buyers.

Taylor Morrison is trading on the NYSE under the “TMHC” ticker symbol.

ipo

Advantages and disadvantages of an IPO

The closing concludes and a company suddenly has $50 million cash in its bank account from the sale of its stock.  Champagne corks are popped and celebration ensues―for a brief period.  “Going public” is an exciting event for all involved and may provide many advantages to the company’s operations.  However, being a public company has certain disadvantages that should also be considered.

“Going public” refers to a sale of stock or debt in an initial public offering or IPO registered with the Securities and Exchange Commission (SEC).  A “public company” refers to a company that has undertaken an IPO or is otherwise required to be a reporting company under the Securities and Exchange Act.  A “private company” typically has a limited number of owners or investors and is not required to file reports with the SEC.  This article discusses some of the advantages and disadvantages of “going public.”

Advantages of an IPO

An IPO and the result of being a public company may provide significant advantages to the company and its stockholders.  These include cash infusion, ability to “mint coin,” easier future access to equity and debt markets, liquidity for pre-IPO stockholders and institutionalization of the company.  The common theme of these advantages is that a liquid market for its stock “unlocks” value that the company could not otherwise access.  By having publicly traded stock, the discount that is attached to stock of private companies no longer applies.

Cash Infusion The result of an IPO is a significant and immediate infusion of cash into the company.  This cash is typically “earmarked” for specific items described in the IPO disclosure documents, which can be for a variety of purposes.  For example, the company may use the proceeds of the IPO to expand its inventory, property and equipment base, reduce debt, further research and development or expand its services.

Minting of Coin. Having an established value and liquid market for its stock creates additional “coin” for the company through issuance of additional stock.  This “coin” may be used as consideration to acquire other business and to compensate both current and future employees.

The ability to utilize the company’s stock for an acquisition significantly decreases its cash needs and allows it to engage in transactions without tapping into its “war chest” of IPO proceeds, which can be put to use to fund future growth.  In addition, acquisitions using the company’s stock as consideration may be structured as a “tax-free” reorganization, which can allow the sellers to defer taxes on gains associated with the sale of their business.  Using stock as consideration for acquisitions also provides sellers an opportunity to participate in the future growth of the combined organization.

Another benefit of a liquid market for a public company’s shares is that its stock may be used to compensate both its existing and future employees through the grant of options or direct issuance of shares.  Grants of options or stock provide a means to share the company’s success and are a great tool for attracting talented management and employees.

Access to Capital Markets.  Being a public company enhances access to both equity and debt markets.  After the company has been a reporting company for 12 months, it may engage in follow-on offerings using a “short form” registration process.  The ability to use this process reduces both the time and expense of future equity financings.

As a reporting company, the transparency of its financial position and operations makes it better suited to obtain debt financings.  The infusion of cash from an IPO also enhances the balance sheet and makes the company a much stronger candidate for debt financings.

Liquidity An IPO provides liquidity to the company’s founders, employees and pre-IPO investors holding the company’s stock.  While the liquidity may not be immediately realized due to “lockup” requirements imposed by underwriters and other SEC rules, being a public company provides a means for the pre-IPO stockholders to monetize the value of their stock at some point in the future.

Institutionalization.  Being  publicly traded  adds to a company’s stature as an institution, which can enhance its competitive position.  The IPO process itself generates publicity that may enhance the company’s recognition in the marketplace.  As a result, suppliers, vendors and lenders often perceive the company as a better credit risk and customers may perceive it as a better source of products or services.  The stature of a public company can also enhance its ability to attract top level executives and employees.

Disadvantages of an IPO

While going public provides significant advantages to a company and its stockholders, the requirements imposed by securities laws produce disadvantages to the company and its operations.  These include increased costs, securities law compliance, changes in corporate governance structure and becoming a “slave to the stock price.”

Costs.  The costs of an IPO include both the costs of engaging in the offering process and the future costs of being a reporting company.  Typical costs of raising $50 million through the IPO process can range from $3.5 million to $5 million.  Raising less money can increase the percentage of offering costs significantly.  These costs include underwriting commissions, legal and accounting fees, SEC and National Association of Securities Dealers (NASD) filing fees, exchange fees, financial printing, travel and other miscellaneous costs related to the offering.  In addition to these initial costs, as a reporting company subject to securities laws, including Sarbanes-Oxley, and exchange listing requirements, the company will have significant ongoing costs associated with its operations.  These costs include outside directors’ fees and expenses, directors’ and officers’ liability insurance, accounting and legal costs, internal control costs, printing costs for stockholder reports and proxies and costs of investor relations.  According to a survey published by Foley & Lardner LLP, these costs average approximately $2.37 million per year, not including lost productivity costs, for public companies with revenue under $1 billion.

The costs are not just monetary.  The IPO process can take up to six months or longer.  During this period the company’s executive management team must devote substantial time and energy to the IPO.  This takes away from management’s time and ability to run the company’s business, and operations may suffer during the IPO process.

Securities Law Compliance A myriad of compliance issues results from an IPO.  The IPO process imposes severe restrictions on the company’s marketing and publicity activities during the “quiet period” preceding the filing of a registration statement.  The registration and reporting process involves the disclosure of significant information about the company that is readily available to the company’s competitors.  Following completion of the IPO, the company will be required to file quarterly, annual and current reports detailing its operations and announcing major events.  This disclosure includes detailed information about operations, executive compensation, financial results and significant customers and vendors.  Proxy statements must be filed with the SEC before a stockholders meeting can be called.  The company cannot release information on a selective basis and must be careful to assure that the information it releases is accurate and complete.  Company insiders and major stockholders also must comply with the Exchange Act requirements for reporting their stock ownership and prohibitions on short swing trading.  Finally, the exchanges where the company’s stock is traded have various listing standards that impose additional governance and disclosure requirements.

The changes to the securities laws resulting from the Sarbanes-Oxley Act have greatly increased the compliance issues that a public company must meet (with corresponding cost increases).  These include enhanced auditing and governance standards, additional responsibilities for the company’s independent directors, development and documentation of control procedures and certifications by the CEO and CFO.  The certification requirements are backed up by possible criminal sanctions for violations.

Change in Corporate Governance Structure A listing requirement of the major stock exchanges is that the company’s board be comprised of a majority of independent directors.  Independent directors cannot be officers, employees, major stockholders or outside service providers.  Independent directors must comprise the audit, compensation and corporate governance committees.  This means that the duties of selection and oversight of auditors, setting executive compensation and determining board candidates and litigation issues are taken away from management and given to “strangers” that may have little past experience with the company’s operations.  Another listing requirement is holding annual stockholder meetings.  Matters such as calling meetings and presenting proposals to stockholders must now be accomplished in compliance with SEC rules.

A major change brought about by Sarbanes-Oxley was empowerment of the independent directors.  Previous “best practices” of having a majority of independent directors are now mandated by exchange listing requirements.  The independent directors are charged with oversight of the company’s management and auditors.  For most companies, particularly where the founders are executive management, the change in corporate governance structure resulting from being a public company may take some adjustment.

Becoming a Slave to the Stock Price It is often said that a professional baseball pitcher is only as good as his last outing and that a CEO of a public company is only as good as her company’s last quarter.  While a fluid and liquid market in a company’s stock unlocks value, a public company’s stock price is frequently subject to rapid fluctuation.  The stock price can be affected by a variety of factors, over which management may have little or no control.  Reporting of quarterly earnings can lead to decision making based on the short term result when a longer term perspective would be better for the company.  The close ties between executive compensation and their personal net worth to operating results enhances the dilemma of seeking short-term results at the sacrifice of long-term perspective.  Wall Street can be impatient and, as with baseball pitchers, may have a tendency to look only to immediate past results rather than the big picture.

A loss of stock value can lead to dire consequences, such as stockholder lawsuits, loss of confidence in management and possible hostile takeovers.  Lawsuits can stem from a sudden decline in stock price.  A stockholder lawsuit can be very costly and distract management from running the business.    Recently stockholder activism has been on the rise and dissatisfaction with directors (including executive management on the board) has been evidenced by stockholders withholding approval of directors.  Various proposals, such as mandatory removal of directors that do not win a majority of stockholder approval in elections, are increasing the pressures on management to perform on a quarterly basis.  If a company loses favor with analysts and stockholders, its stock may suffer additional devaluation, which could lead to it becoming attractive to a hostile takeover bid.  A successful takeover, particularly a hostile takeover, could result in the company’s founders being removed from management positions.

Conclusion

While going public can have many positive effects on a company and its operations, these positive effects must be balanced against the disadvantages.   Going public drastically changes a company’s culture and has an ongoing impact on business operations.  Determining if going public is the right course for a company to pursue is a major decision and must be carefully considered by management before this course is taken.

 

Thomas Morgan is a partner in Lewis and Roca’s (www.lrlaw.com) Phoenix office in Phoenix, Arizona. He practices securities, corporate and tax law with an emphasis in public and private securities offerings, private equity fundings, mergers and acquisitions, regulatory compliance, and general tax planning. He can be reached at 602.262.5712  or TMorgan@LRLaw.com

LifeLock2

LifeLock falls in 1st day of trading on NYSE

Shares of LifeLock fell more than 3 percent in its first day of trading as the online provider of identity theft protection services priced its initial public offering below the anticipated range.

The Tempe company dropped 30 cents, or 3.2 percent, to $8.70 in morning trading on Wednesday. The shares opened at $8.38, down 7 percent from the $9 per share that the initial public offering was priced at. The broader markets were mostly higher.

LifeLock disclosed in a September regulatory filing that it expected the offering of 15.7 million shares to price between $9.50 and $11.50 each.

The offering raised $141.3 million.

LifeLock is offering 15.5 million shares in the IPO, while certain selling stockholders are offering 200,000 shares. LifeLock won’t receive any proceeds from the shares sold by selling stockholders.

The underwriters have a 30-day option to buy up to an additional 2.4 million shares from LifeLock.

LifeLock said in its filing with the Securities and Exchange Commission that it planned to use its net proceeds to pay back an outstanding balance for a term loan related to its acquisition of ID Analytics. The company also said it would use part of the proceeds to pay the amounts due to some preferred shareholders and for working capital and other general corporate purposes.

LifeLock Inc. is listed on the New York Stock Exchange under the “LOCK” ticker symbol.