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Gene One made a name for itself in the biotech industry with its breakthrough gene technology that eradicated disease in tomatoes and potatoes. It was a benefit to farmers who no longer need the use of pesticides and consumers that like organic produce. This successful discovery helped Gene One grow to a $400 million company in a short span of eight years.
Gene One hopes to capitalize on the growing interest in biotechnology as the stock prices on Wall Street continue to rise. The CEO and the Board at Gene One believe that becoming a public entity will help the company keep up with growing demand and realize their target annual growth of 40 %. Gene One has a strong leadership team to begin with but none of the members are familiar with the IPO process.
As the team continued to do its research on the IPO process, they realized that the Board isn’t aligned with the Securities Exchange Commission’s Sarbanes-Oxley Act requirements. Financial statements and internal controls are part of the SOX compliance as well. Some of the Board members are concerned that the current leadership team might not have the qualifications to pull off an IPO transformation. Going public isn’t cheap and Gene One needs capital for new development, marketing and advertising. It also needs to increase interest in the stock by finding multiple firms to make the initial offering. The stock price has to be right to ensure a return on investment for initial investors.
From the beginning Build-A-Bear’s longterm plans were to become a public company. Prior to the IPO process the company had seen store sales drop as much as 16 % over three years. The executives knew something had to be done to get sales up in order for the company to be well-positioned for its planned $125 million initial public offering. (Jackson, 2004) To ensure the success of its IPO, Build-A-Bear made efforts to establish relationships with multiple investment banking firms. Stock pricing was also an issue. A main concern that the company had was being in compliance with the Sarbanes-Oxley Act as well. Staff changes had to be made prior to going public to help the process along. (Thomson Financial, 2006)
IR Director Molly Salky stated, “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.
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Where sales were concerned, executives spent millions of dollars on advertising each year leading up to the IPO. It included a national television advertising campaign on children’s cable programs, direct mail, and e-mail promotions. “The company also entered into licensing agreements with manufacturers to develop a collection of Build-A-Bear brand products, including greeting cards, scrapbook supplies, shoes, books, toys, bedding, fabric, and bath accessories.” (Jackson, 2004) This help build up brand awareness with consumers.
Build-A-Bear held several meetings with investment banking firms with sell-side analysts at each of these firms. Sell-side analysts can gauge a company’s market awareness and help management better understand what information interests analysts in the company’s industry. Stock price was also determined with the help of sell-side analysts. To comply with the Sarbanes-Oxley Act, outside resources were hired to assist with the documentation process and testing and evaluation of internal controls. (Thomson Financial, 2006)
Build-A-Bear didn’t fill in the CEO position until six months prior to the IPO. An executive with Wall Street experience was selected for this position. Key personnel including general counsel, IR director, and SEC reporting officer were brought on board in addition to the CEO in relation to the IPO. The company established relationships with five investment banking firms: AG Edwards, Citigroup, CSFB, JP Morgan and T. Weisel. The investment firms introduced the company to more investors by providing an IPO roadshow. The stock was priced at $20 after the entire offering was upsized by over 10%. With increased revenue and capital, the company was able to move forward with plans to open more stores. More importantly, Build-A-Bear was in compliance with SOX. (Thomson Financial, 2006)
Some course concepts covered in this company benchmarking are adaptive culture, corporate social responsibility, and knowledge acquisition by grafting. Gene One and Build-A-Bear had to adopt an adaptive culture when both companies decided to go public. Adaptive culture occurs when employees focus on and support initiatives to organizational change in keeping up with changing needs of customers and other stakeholders. (McShane & Van Glinow, 2005) Corporate Social Responsibility is a company’s moral obligation toward its stakeholders such as shareholders, customers, suppliers, or any group that has a vested interest in the organization. (McShane & Van Glinow, 2005) After becoming a public company, there’s an obligation to all investors and shareholders to make an effort to have a return on their investment and that the company’s practices have their best interest at heart. Grafting is acquiring knowledge by simply hiring an individual or company to provide expertise or service. (McShane & Van Glinow, 2005)
Best Practices for Gene One
Based on what Build-A-Bear has accomplished, Gene One is on the right track. The proposal to the Board listed all the elements that need to be implemented in order for the IPO process to be a success. These include the development of breakthrough technologies to increase revenue, adopting an adaptive culture and a new business model, developing a public company infrastructure, complying with the SEC and SOX, establishing relationships with investment firms, and determining the optimal stock price for these investors. Gene One is loyal to its current staff but senior leadership team cannot be afraid to make staff changes necessary to make the IPO transformation a success. The company should also consider joint venture and licensing agreements with other companies to raise capital. Gene One should also start acting like a public company prior to its IPO launch.
MasterCard had the same concerns as Gene One and Build-A-Bear. The company was concerned about having the right staff to ensure compliance with the Securities Exchange Commission and the Sarbanes-Oxley Act. Pricing stock was a challenge for MasterCard because of the current market conditions prior to launching their IPO. Building relationships with investment firms was also on the agenda.
What MasterCard did that was different from Build-A-Bear in acting like a publicly owned company prior to the IPO transformation is it became a private share company. They achieved this by merging with Europay International, its European counterpart. The merger made the company more global and in line with the interests of management. As a private share company, MasterCard had more than 300 shareholders consisting of its Member Banks. This resulted in the company having to register with the Securities Exchange Commission. (Thomson Financial, 2006)
In establishing relationship with potential investors, an investor relations professional was hired to work closely with the vice president of investor relations. MasterCard also sought advice from chief executive officers and chief financial officers of other companies that have gone public and received firsthand feedback on the IPO process. Stock price was changed numerous times because of a combination of down market performance and peer evaluation declines. Vonage had began trading the around the same time the stock was priced and this overshadowed any IPO’s pricing. (Thomson Financial, 2006)
Since Mastercard had already been filing with the SEC when it became a private share company, it was in compliance with SOX two years ahead of the deadline for companies in the same category. In its effort to reach out to investment community prior to going public, MasterCard worked with investment bankers whom they’ve worked with before as customers or advisors. With the help of the bankers and the IR professional the company held a roadshow in 20 cities over 13 days and met with over 800 potential investors. Stock was priced at $39 per share and closed up $7 the first day. The stock did so well that the underwriters increased the share count by 7.5%. (Thomson Financial, 2006)
Similar course concepts in the Build-A-Bear benchmarking were also covered in MasterCard’s benchmarking such as adaptive culture, corporate social responsibility and knowledge acquisition by grafting. MasterCard changed its organizational culture to an adaptive on that mirrored a public company. Corporate social responsibility should be high in priority for any company going public. They hired an IR professional to help with handling publicity and finding investors and that’s an example of grafting. Cross functional teams were formed with members of different departments prior to MasterCard’s first earnings release as an IPO to address any issues that might be of concern of the investment community before they come up. There was also knowledge acquisition by learning about the external environment as the CEO and CFO did by interviewing their counterparts from other companies. (McShane & Van Glinow, 2005)
Best Practices for Gene One
Benchmarking MasterCard’s IPO process proves that it take months, years, or even longer to implement a successful IPO transformation. MasterCard didn’t replace staff but hired outside sources with experience the company sought to work closely with their current staff. For instance, an investor relations professional with previous IR experience who dealt with companies such as Ford, Lucent was brought on board to work with the VP of investor relations of the company. Both of their experiences worked well together.
Another thing that MasterCard did differently was involving the Chief Executive Officer Robert Selandar and Chief Financial Officer Chris McWilton in the IPO process. Instead of just listening to the advice of the investment bankers, both gentlemen took the time to talk to their counterparts of other companies to get feedback on their IPO processes. What they learned was that there was a time commitment away from the office and plenty of patience was required for a successful IPO. It was also to MasterCard’s benefit to involve the CEO and CFO when reaching out to the investment community. Who better than these two men to ensure these investors are informed of the company’s strategy, business model, and plans to uphold MasterCard’s reputation and credibility. It would only increase the investor’s confidence in the stock. Gene One hopes to launch within a 36 month span but they should take in consideration that it could take longer for it to be successful. Patience is a virtue and Gene One executives should do their homework and seek advice from their counterparts.
What I learned from this benchmarking assignment that companies regardless of size have the same concerns and similar methods in succeeding in an IPO transformation. MasterCard might have had an easier time then Build-A-Bear because of brand recognition. Increasing revenue and capital, complying with SEC regulations and SOX requirements, finding investors were similar goals both companies had. Timelines in implementation of such goals vary but rushing the process would be a disadvantage. Important things could be overlooked when there’s a time constraint. Companies can learn a great deal from each other and should share knowledge that would help others succeed in their IPO endeavors.
Jackson, M. (2004, August 20). St Louis Business Journal. Retrieved April 11, 2008, from
McShane, S. L., & Van Glinow, M. A. (2005). Emerging Realties for the Workplace Revolution.
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Thomson Financial. (2006, September). Retrieved April 11, 2007, from