Every private-placement issuer should enjoy Tim Vatu-one’s headache. “One of the most difficult things was paring down the list of investors,” says Vatuone, vice president and CFO of closely held Vivid Semiconductor Inc., in Chandler, Arizona. Even after the fast- growing computer chip designer raised the size of the offering to $22 million, from $18 million, some investors still went home empty- handed.
With sales doubling every quarter, Vivid Semiconductor needed capital in a hurry. A private placement of equity promised a quicker turnaround than new rounds of negotiations with venture capitalists. “We went from draft to money in 90 days,” says Vatuone. In exchange, the company accepted $3.75 a share, versus $4 in the offering memorandum. Nevertheless, according to Vatuone, Vivid fetched a rich multiple of its trailing 12- month revenues, compared with similar offerings that its investment banker, Montgomery Securities, was able to identify. The new shares, about 20 percent of Vivid’s equity capital, indicated a total value for all the shares of $105 million.
By testing interest in the company, the private placement also served as a dress rehearsal for an initial public offering. Shares were distributed initially on a first come, first served basis, but as demand mushroomed, the company thinned the ranks by encouraging investors likely to buy into the IPO.
Such stories are increasingly common in the burgeoning private placement market. According to Securities Data Co., through the first six months of 1997, issuers raised $146 billion in privately placed equity and debt–more than 55 percent ahead of last year’s robust pace. From straightforward debt deals to complex transactions using debt, equity, or convertible securities, deals large and small are getting done on terms favorable to issuers.
Nextel Communications Inc., in McLean, Virginia, routinely issues private placements with the intention of a subsequent registered sale to public investors. “A private placement followed by a public offering can give you the best of all worlds,” says Steven M. Shindler, Nextel’s CFO. To satisfy a voracious appetite for capital, Nextel has raised $4 billion in the past 12 months, $1 billion of it using private placements with registration rights under the auspices of rule 144A.
Hungry for modest increments over returns they can find elsewhere, pension funds, insurance companies, and other institutional investors seem confident that registration rights bestow adequate liquidity in the private placement markets. Even companies with weak credit ratings or home bases in volatile emerging markets can command a following. “The nontraded private placement market is being crowded out by more robust markets,” says Tim Hall, head of the private placement group at ING Barings U.S. Securities Inc., in New York. If private placement lenders want the business, in other words, they have to go head- to-head with less-discriminating banks and public high-yield suppliers.
Several private placements of Comforce Corp. stock have facilitated an aggressive growth strategy, capped in August by the $105 million acquisition of Uniforce Services Inc. When the deal is completed, the two companies in the employee outplacement industry will have combined revenues of $400 million. The private placement suited Comforce even though its shares are already publicly traded on the American Stock Exchange.
A pool of about a dozen investors have stepped up to provide Comforce with fresh capital in both private placements of stock, totaling approximately $25 million, and one private placement of another $25 million of debt. CFO Paul Grillo sounds pleased both with the speed of these private placements and minimal regulatory hurdles. But he warns that private placements serve best as a means for companies to grow rapidly to critical mass. “Private placements,” he says, “are not what you want to do long term.”