The Going Public Project.

• Author: Miller, Maxwell A.
• Position: Brief Article

The Ins and Outs of IPOs

What does it mean to "go public?" George Flint, a Salt Lake City lawyer who helps corporations do just that, puts it succinctly: "'Going public' means that companies register shares of stock with the Securities and Exchange Commission (SEC) and offer them for sale."

"Going public" is a mammoth industry in America, especially with ever-increasing employee participation in retirement plans that offer a menu of portfolio investments. So far this year in the United States, the top 12 companies have raised more than $1 billion through initial public offerings (IPOs) of stock.

Even relatively small states, like Utah, get into the act. A quick check of the SEC's database at www.edgar-online/com lists nearly 100 Utah companies that have registered their shares for sale in a public offering. Some are unknowns while others are household names that have attracted considerable public attention.

For instance, the Salt Lake Tribune reported on three Utah IPOs offered one Tuesday in May -- a biotech company, an internet firm and a hearing-aid maker. On that day, the hearing-aid maker, Salt Lake City-based Sonic Innovations, which used technology developed at Brigham Young University, was declared "the winner" because its stock rose the highest of the three over the shortest time span.

Stocks can be volatile, as every investor knows, especially those from start-ups. Yes, there actually are stocks that shoot up 50 percent or 100 percent within a few weeks. Yet extensive research shows that the average return on IPOs issued over a 20-year span averages a mere 5 percent per year. Reflecting on a typical IPO ordeal (that nearly killed he and his company), the president of a software company says, "If it hadn't been for the stress of the IPO falling apart, I don't know if I'd have had a heart attack."

Whether heart-wrenching or heart-warming, today's businesses, including Utah businesses, should be aware of the advantages and disadvantages, the ins and outs of IPOs.

The Upside

The most obvious benefit in "going public" is to raise cash. Of the approximately 600 IPOs in the nation in 1997, the average was $114 million and the median approximately $33 million. With cash comes a number of other options, such as the possibility for mergers and acquisitions of competitors and complimentary businesses; liquidity for investors and company employees; and enhancement of public image, market value and access to...