IPO attorneys forced to shift focus to mergers, acquisitions

Crystal balls are pretty cool. Just one problem: They never take change in to account.

Take for example the crystal ball lawyers eyed during the 1990s. In the securities section of the ball, all looked rosy. In fact so rosy, some law firms bulked up their firms with lawyers just to take companies public.

“If you had a pulse, you could go public in the 1990s,” says Rob Planchard, a corporate finance attorney in the Boulder office of Faegre & Benson. “In the mid-’90s, the Nasdaq was in the five thousands. Today is in 12 hundreds.”

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And those folks with a pulse were getting rich within a matter of minutes after the opening bell rung on IPO day.

Then change.

Public market activity — especially locally — took a sharp nose dive south.

So what’s a lawyer — pumped and primed to handle initial public offerings all day long for months on end — to do in a tepid economy? Go with the flow.

And the flow has slowed to a trickle.

Mike Forbus with Cooley Godward, a law firm that represents early-stage technology companies and taking companies public, says his firm was “quite busy during the bubble” but he says the firm “expanded carefully” to be able to service clients.

“Even then we were turning work away,” Forbus says. “When the bubble started to burst, like any well-managed company, we made quick adjustments to balance the size of our office with changing market conditions.”

Forbus admits the firm was fortunate in reading the market correctly, and the firm landed its second most-profitable year in 2002.

Even during the downturn Forbus says his firm has kept attorneys busy with venture and other types of financings. “Yes, they are still happening,” he says.

And Cooley Godward even worked on what little IPO work there was. The firm was on the Healthetech IPO, which was one of the few IPOs in the country last year.

But most of its work dealt with mergers and acquisitions, venture fund formation, technology licensing and partnership deals, intellectual property and litigation practices, as well as general corporate work.

Planchard says some law firms — Faegre & Benson included — took the opportunity to make the most of the soft economy to cherry-pick top lawyers.

“We used the market to find good lawyers,” Planchard says. “We went about it (hiring) surgically. We’ve always been in the business for good lawyers.”

But Planchard says Faegre & Benson didn’t have “significant hiring” during the IPO bubble, and the firm realized that Colorado’s economy “has always been cyclical.”

“There was the oil and gas bubble, the tech bubble,” Planchard says. “So we approach hiring strategically.”

And it appears the firm is reflecting market needs. A good example is that now Faegre & Benson is taking time to teach companies about what it takes to get delisted on the Nasdaq. More than 60 companies were delisted from Nasdaq for failure to maintain a sufficiently high stock price or market cap in the first quarter of 2003 alone.

Two attorneys with Faegre & Benson, Jeffrey Sherman and Michael McGawn, have authored an and article titled A Primer on Public Company De-Registration.

In the article, Sherman and McGawn explain that many companies simply aren’t able to meet stock market listing standards for share prices or market capitalization and so they share several considerations of delisting.

For example, in discussing eligibility to become deregistered, the two authors say that companies with a class of securities registered under the Exchange Act that have less than 300 record holders, or less than 500 record holders if the company’s total assets have not exceeded $10 million as of the end of the company’s three most recent fiscal years, may terminate the registration of any such class of securities.

The article also explains that going public isn’t as attractive to some companies as it used to be.

Public companies will soon have to find independent directors — no doubt already rare birds — particularly for companies just getting by. Then there’s a bundle of other considerations: audit fees, insurance, legal fees not to mention having to keep track of all the new rules — especially the ones dealing with certifying the accuracy of their companies’ financial statements.

Public companies also have the Sarbanes-Oxley Act of 2002 to contend with. And that’s on top of dealing with the Securities and Exchange Commission and stock market regulation.

But again — a look into the crystal ball is tempting. And Forbus is bullish on the future.

“We currently are seeing some up-tick in business in certain sectors so we think the market has bottomed and is starting to crawl back,” he says. “In fact, we have had a number of new client wins in just the last few weeks so we are optimistic about the short- and long-term environment in Colorado.”