Public With a Boom
Does the IPO market still offer a preferable exit strategy? Athenahealth chief executive Jonathan Bush thinks so, but he’s learned a few lessons.
by Mary Lowengard
Sitting in a conference room with his company officers at Nasdaq headquarters in Midtown Manhattan in late September, Jonathan Bush, cofounder and CEO of Athenahealth, was having a blast.
Athenahealth’s IPO was launching — the Nasdaq beamed the news, four stories tall, into Times Square — yet Bush professed to have not a bit of butterflies. “At 11 o’clock we did the big countdown,” he recalls. “Nothing happens, nothing happens, nothing happens . . . and then, 15 seconds after opening — boom!”
The good kind of boom, that is — Athenahealth’s shares were priced at $18 and rose nearly 100 percent, to $35.50, by close of trading, making it one of 2007’s most successful public offerings. Athenahealth’s IPO proves an interesting case study. Given the abundant private capital available, why put up with the inconveniences of being a public company? The open kimono, the tedium of SEC filings, the short-term pressures inherent with a stock price, the second-guessing of Wall Street analysts and (most of all) Sarbanes-Oxley, with its additional regulation and reporting burdens and criminal exposure for corporate officers — who needs it?
Bush (a first cousin of the president) professes to be bothered by none of this. In fact, he says, he enjoyed the entire six-month slog of going public, from hiring the investment bankers to the opening-day countdown, though he has a few tips — and one complaint, detailed below — for others who might be considering an IPO. He even sounds like he means it.
An ebullient type, Bush once promised that Athenahealth’s executive team would dress up as superheroes if an overweight employee managed to lose 70 pounds. The weight came off, and the costumes went on — with Bush as Batman.
The IPO, he says, has been part of the plan since 1999, two years after the Watertown, Massachusetts–based company had been founded; proceeds from the listing will pay down debt and fund future growth. He sees Athenahealth — which provides on-demand Web services that help physicians manage billing and medical records — as a company along the lines of a utility, and is certain that public ownership is the proper capital structure.
Bush took steps to wring as much benefit as he could from each aspect of the IPO. For instance, he used the transparency requirements to bolster company morale. Much to his lawyers’ chagrin, Bush kept a blog for Athena employees that kept them up to date with each step. He embraced the routine of courting analysts (“I want to be judged by those who know better,” he says cheerily) and seemingly regarded their cross-examinations as an opportunity for free consulting. And Sarbanes-Oxley? “It’s good discipline,” he insists. Short-term performance pressures? He pledged not to look at the stock price until six months after the company’s IPO.
Athenahealth’s stock performance, in retrospect, wasn’t shocking. The medical establishment has embraced the company, and it has been something of a business-press darling. Bush reminisces about the road-show marathon he and cofounder Todd Park ran this past summer (they crammed a mind-numbing 93 meetings into a single seven-and-a-half-day stretch). “I met with more than 250 investors, and every one of them had had some experience with the administrative hassles of health care,” Bush says.
He adds he’s not worried that with the company out in the open, competitive forces might replicate Athenahealth’s offerings. “Capital is not a barrier to entry in this business,” he says confidently. “Information is.” The lessons he learned from his public offering? “Make the investment bankers jump in the water” — figuratively and literally: While on the West Coast during the road show, he demanded that bankers from the company’s lead managers, Goldman Sachs and Merrill Lynch, take a dip in San Francisco Bay. He also made sure they didn’t stick him with excessive travel costs, including air travel. “They’ll tell you they don’t have to pay for the plane,” he says, “but they will.”
His biggest epiphany was that if he had to do it over again, he’d skip the underwritten IPO and opt instead for a Dutch auction (as Google did), ensuring that the demand for the stock produce funds for the company instead of the bankers. Wall Streeters typically call that Monday-morning quarterbacking. “A lot of IPOs of late have been priced at X dollars, and you leave a lot of money on the table,” says Todd Weller, an analyst at Stifel Nicolaus. “But there are other benefits to an IPO in terms of investability and credibility.” Bush disagrees. He has, in fact, just one regret about having taken his company public: the difference between the $111 million that went to Athenahealth from the IPO and the $220 million its stock was worth a few hours later.