For J. Mario Molina, a physician and CEO of Molina Healthcare, an IPO provided the fuel to help propel his health-maintenance organization into a new dimension of growth.
Molina Healthcare's offering raised $115.5 million on the first day of trading; selling 6.6 million shares at $17.50 each. A few days later, the company received $107 million in net proceeds (after expenses, including the 7 percent that went to investment bankers).
For Mr. Molina, son of emergency room physician and company founder C. David Molina, the money quelled the frustration he felt watching competitors expand through acquisitions funded by money raised in the capital markets. Although Molina had been able to grow from a small, regional care provider to a multistate HMO with half a million members in four states and 21 primary care centers in California, the company lacked the funds for acquisitions.
"We wanted cash to allow us to take advantage of the opportunities we were seeing," says Mr. Molina, adding that funding expansion for his Long Beach, California, company through retained earnings would have taken far too much time amid a fast-moving competitive market.
Many in the business world consider a public offering a rite of passage, a day when a business earns a certain cachet and takes its place alongside Wall Street giants. But while it may be an attractive financing option for many companies, experts caution that offerings are a long, arduous process with significant long-term implications for a company.
|Molina Healthcare Inc.|
CEO: J. Mario Molina
Headquarters: Long Beach, California
Ticker symbol: MOH on the NYSE
IPO date: July 2, 2003
Number of shares in IPO: 7.59 million
Total outstanding shares: 25.4 million
IPO managing underwriters: Bank of America Securities, CIBC World Markets, SG Cowan
Before deciding to go public, Mr. Molina says he considered a variety of funding options, including loans and a private placement. But as an HMO without collateral, few wanted to provide loans. To obtain the amount of funding he wanted, Mr. Molina says a private-equity placement would have diluted the company: Molina Healthcare, which before its IPO was 100 percent family-owned, would have had to sell as much as 40 percent of its stock in such a placement compared to just 25 percent in an IPO. Mr. Molina also found that few want to buy stock in a privately owned company because no market exists for selling those shares.
The main advantage of going public is the ability to reach a larger and more diverse investor base that offers the potential to raise more money, says George L. Rodriguez, senior vice-president and head of capital markets at Guzman & Company, one of the nation's largest Hispanic-owned investment banking firms. The New Jersey firm is the only Hispanic-owned investment banking firm to be a member of the NYSE.