What this CEO meant was that a public company is free to issue new shares and sell them to the public or other entities. As these publicly traded shares are worth money and easy to liquidate in stock exhange, it is pretty much the equivalent of hard dry cash. Instead of issuing and offering these new shares to the public and investors, a public company also has another choice. These new shares can also be issued to a certain entity as a form of paying at least part of an acquisition price of another company, public or not. In other words, if you're a public company you can print your own money - that is to say, issue new publicly traded shares - and buy other companies with this "money". I had the perfect opportunity to watch from close range how this was done with masterful strokes by this previously mentioned CEO. I was privy to all the details and plans before they happened, and this CEO had predicted all the events with alarming precision. All the events took place pretty much exactly as predicted and in a little over year's time a smallish private company with a yearly turnover of 5-8 million euros morphed into a smallish international conglomerate with a yearly turnover of 80 million euros. In short, the company grew tenfold in a blink through acquisitions and mergers. That's like a fairy tale come true in business life!
To tell you an anecdote within an anecdote, I'll mention that I also learned a lot about negotiating from this CEO. He used some fairly inventive methods in negotiations and I wasn't always happy to end up with the shorter straw. I didn't make any too bad deals with him, but I felt I had given in a little too much. My own managing director at the time laughed at my complaints, but I was later vindicated. It so happened that our managing director was to renegotiate a little deal with this CEO. He did it over the phone and just a little later he came and told me that he was totally overwhelmed by this CEO. He had ended the call having renegotiated the little deal with new terms and felt happy about that. Very soon he realised that he had agreed to even worse terms than the original deal had, and he was forced to once again call him up on the issue. And our managing director was no new puppy to the game and still he had fallen. I felt some satisfaction listening to his story and how he now understood my complaints about this CEO's negotiating skills...
Back to the original story. I had made an acquaintance with this company and its CEO several years earlier when they hired me as a consultant to help them with their object oriented software development efforts. After that we ran into one another every once in a while and 5-6 years later I went to work for them full time. Their plans of going public and growing rapidly sounded very interesting to me and I saw the opportunity of doing something big and worthwhile. Therefore I joined their ranks at that point.
I was invited by their CEO to their Board of Directors' meeting where I heard their plans in detail. All the members of the Board were co-owners of the company and I was the only outsider in the meeting. The CEO detailed his plans and described every step of the way in vivid detail. I remember thinking that it's a wonderful and bold plan, and if even half of it were to come true it would be an unbelievable achievement. The basic idea was to first turn public and then use issued shares to buy other companies, first small and then bigger and bigger until the last one to be gobbled would be the biggest prize of them all. All of the acquired companies would be in the same business to enable greater synergies and financial efficiencies to be exploited. In these acquisitions almost no cash was to be used.
Most critical step in this CEO's plan was to go public because without that step completed succesfully there would be no currency to go on that wonderful shopping spree. The original plan was to go public in spring 2000, but the CEO had recently concluded it would be too late. He believed there would be too many IPOs for the last ones to succeed and therefore he wanted to expedite the initial public offering to take place half a year earlier, in fall 1999. He expected a great rush of IPOs of small companies and needless to say, he was right. Public interest might have greatly waned in the spring and the public offering might not have succeeded. I can only admire his foresight even though I know he had great contacts. Even if you have great contacts and are greatly positioned, it is not easy to interpret right the soft and weak signals you detect. You have to be visionary and in some small measure a true clairvoyant... :-)
He also envisioned the order in which the acquisitions would take place. First we would acquire several smallish Finnish companies in the business and after that we'd go on an international buying spree all over the world. And finally, we would gobble the big fish, much bigger than we were. All these acquisitions were friendly, not hostile takeovers, so I later realised that he had probably tested the waters previously and discussed his plans with the other parties to a certain degree. This makes it all the more extraordinary performance in my eyes, for he has been able to sell his vision to all these prominent and capable business people and make them come under the same umbrella, if you will. They all heard his call and came, and he himself landed on top of the new company as their CEO. I find it just amazing. Amazing.
As I mentioned earlier, the events took place quite exactly as he had envisioned they would. In a little over a year, a smallish private company with a yearly turnover of 5-8 million euros morphed into a smallish international conglomerate with a yearly turnover of 80 million euros and business literally all over the world. When the new company build-up was finished, I was assigned to the new position of Product Development Director of our Finnish subsidiary. I had in my unit half a dozen software development or software testing teams to run, each with a competent and experienced team leader, so I felt it was time to do great things. For me it was a dream assignment and it felt like tailor-made for me. Unfortunately, I wasn't to enjoy that for long, for soon I fell severely ill and was forced to give up that dream position. Even though that was a great disappointment I feel privileged to have been part of the process and having been able to watch the events unfold from a close range. Great experience!
That's it for today, folks!
This was a great article and fun, as well as informative. That CEO was quite the shrewd negotiator and in life, this is a lesson for anyone to learn: how to make a deal and keep everyone happy.
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