- The Washington Times - Monday, June 5, 2000

If taking a company public is comparable to anything, it's a college graduation. An initial public offering is an important and prestigious event, but it is just the beginning of a career. A poor IPO performance may not make or break a company.

"It's just another event in the continuum," said Jack Lewis, a Shaw Pittman lawyer who for 26 years has helped hundreds of companies go public. "It's part of the cycle, but not the defining event."

But it is a critical beginning for a business. Successful IPOs infuse young companies with capital for expansion and encourage future investors.

Ten years ago, most investors would not expect returns for at least five years. Today, thanks to the skyrocketing popularity of technology stocks, many investors have come to expect strong returns within 18 months to three years.

Such expectations have put increased pressure on new companies searching for funds through IPOs. But analysts said investors should focus more on a company's product or service and its strategy, and less on the first days of the IPO.

Four local technology companies went public in February: WebMethods Inc., VarsityBooks.com, Via Net.Works Inc. and Savvis Communications. Two of the companies' stocks skyrocketed in early trading before settling down. Two others barely moved. But all four companies say they have raised the money they need to implement their business plans.

The "big day" is now a distant memory as the young companies face the future and all the connections and deals they must make to become successful.

One thing these companies did have on their side was timing. Three weeks after they went public, Wall Street showed the first sign of its displeasure with technology stocks. And as investors began worrying, prices plummeted. Now many technology stocks are worth about half of what they were at the end of February.



The story of Fairfax-based WebMethods illustrates what happens before, during and after a company conducts an IPO.

Husband-and-wife Phillip Merrick and Caren DeWitt wanted to start a software firm that integrates computer systems both within companies and between companies.

So in the summer of 1996 they started WebMethods out of their basement. Nearly four years later, on Feb. 11, their company went public in the third most successful IPOs ever in terms of percent increase in the first day.

WebMethods' stock was initially valued at $35 per share, but rose 507 percent its first day on Nasdaq to close at a staggering $212.63. From the IPO alone, the company raised about $170 million.

WebMethods in May doubled its size by purchasing a California firm, Active Software Inc., for $1.3 billion. Active makes software that integrates computer systems within companies.

While investors fawned over WebMethods during its IPO, the founders had a hard time raising funds during the summer of its birth. The couple maxed out credit cards, burnt up savings, borrowed from friends and family.

Things were so bad in the fall of 1997 that WebMethods' total net worth boiled down to $31 in the bank.

Then the young company caught the eye of Gene Riechers, managing director of FBR Technology Venture Partners, part of Arlington-based Friedman, Billings, Ramsey. Mr. Riechers made WebMethods one of his first investments.

"What I saw in the six-person company of WebMethods then was a great group of people who had built software for integration applications in a way nobody else was doing," Mr. Riechers said.

Three years flew by, during which the company leased a three-story building in Fairfax, developed a substantial clientele and hired 310 employees.

"The crazy thing was, it was so difficult to get funding in the first place. Then all of a sudden we went from no venture capital funding to just having tons of offers," recalled Mr. Merrick of the winter of 1997-98. "Instead of being shown out doors, we were getting 10 calls a day."

That winter WebMethods took in $3.6 million in venture funding from FBR and to other venture capital firms. Two years later, this February, WebMethods conducted its IPO, capping four years of stress and hustle with astounding success.

It was "an extraordinary experience," said Mr. Merrick, but "it was just a financing event … the closing of Chapter 1."

Big clients such as FedEx, Staples, Bell Atlantic, and Hitachi have flocked to WebMethods since its IPO.

The company recently reported its 1999 revenues, which increased fivefold to $23 million from the previous year's $4.5 million. (In 1997 it posted only about $200,000 in revenues.)

WebMethods isn't profitable, however. Whatever revenues and venture funds have come in, WebMethods has put toward growing the company and securing its position in the market.

"I absolutely think it's a smart thing to do," said Mr. Riechers. "There is a huge growth opportunity in front of them, and not to spend the money on these opportunities … would allow somebody else to take over our lead in the markets."

Fortunately for WebMethods, it went public just weeks before investors began turning away from technology stocks.

David Menlow, president of IPOFinancial.com, a Millburn, N.J.-based firm that tracks IPOs, said WebMethods' offering "was probably the last hurrah for the business-to-business stocks … [the stock] subsequently sold off, but it's still one of the most serious contenders for the best stocks out there."

Before Wall Street's craze over tech stocks subsided, WebMethods' stock went as high as $336.25. The stock closed at $112 Friday on Nasdaq.


Via Net.Works

Of the four companies, Via Net.Works, a provider of Internet services to businesses in Europe and Latin America, raised the most funds during its IPO: A staggering $300 million.

Its initial offering price was $21 per share, and it closed at $49.81 on Nasdaq its first day, the same day WebMethods went public.

Although Via Net.Works' stock was worth less, the company raised more than twice the amount that WebMethods did, because it sold many more shares.

Priced at $xx (Friday), the company's stock is "trading very close to its offering price … and substantially off its high" of $72.50 on March 2, said Steven Tuen, an analyst with IPO Value Monitor in New York.

The stock is "fairly valued around this price," he said. "When it was up at $71, $72 per share, the market for Internet stocks was still very accommodative… . Since March when [they] took a beating, I think Via Net.Works actually held it pretty well."

Since going public, the company has stuck with its original business strategy of acquiring small Internet providers overseas and integrating them into the company. Since its start in mid-1997, Via Net.Works has acquired 21 companies.

"We are going to continue developing products and market them to the business sector in Europe and Latin America," said Catherine Graham, chief financial officer. "We plan to expand both our footprint and our depth in the market."

Savvis Communications

Savvis, despite a tepid IPO performance, has effectively used the offering to reach the next level.

"The business strategy at Savvis has been to meet the needs of information-intensive industries for reliable, high-speed data communications and Internet services, and to make the benefits of private networks accessible to small and midsized businesses," said Jack Finlayson, president and chief operating officer.

And the company "made substantial progress in executing its business strategy and believes that this will be recognized by the market over time," he added.

Reston-based Savvis is a spinoff of Bridge Information Systems, a New York financial information company. At the time of its IPO on Feb. 15, Savvis acquired the Bridge Internet network, which delivers high-speed Internet and business quotes to companies in 43 countries.

The 4-year-old company raised about $357 million during its IPO. On the day of its IPO, Savvis' stock closed at $24, unchanged from its opening price. The highest it ever went was $28 on the day of its IPO and has gone down since.

It closed at $xx on Nasdaq Friday.

One analyst said Savvis could do more to attract investors.

"A situation like this just doesn't distinguish itself from other stocks," said Mr. Menlow. "It's like taking a rubber stamp and saying 'Here's another company, and another, and another.' "

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