Source: SBA, "Demographics of SBIC Program–Financed Small Businesses Reported Between October 2001 and September 2002."
About the same time Mr. Abbott went to Wall Street, Jorge Mas Santos, the CEO's son, began talks with Burnup & Sims, another construction firm that worked in Church & Tower's specialty – laying cable. Rather than take Church & Tower public, the Mas family decided on a reverse merger. Technically, Burnup & Sims acquired Church & Tower, but the stockholders of Church & Tower – members of the Mas family and partners – received the largest share of the equity. As part of the transaction, the company changed its name to MasTec in 1994.
What lessons does MasTec offer to entrepreneurs? First, although public-equity capital is money you never have to pay back, it comes with costs. For an initial public offering (IPO), the accounting, legal, and underwriting fees add up to "well north of a million dollars," says Mr. Abbott. However, MasTec illustrates creative approaches to offsetting those costs. "The biggest surprise [in the process] ended up being a pleasant one," says Mr. Candela. "The sale of non-core assets after the reverse merger effectively paid for the transaction."
Another lesson: Timing matters. "During the time when [MasTec] went public, the stock market was booming and equity was available at attractive multiples of earnings," says Mr. Candela. "The dilution [of shareholder equity value] was relatively cheap compared with today's valuations. Private equity was too expensive and forced companies to give up a larger measure of control than by going public."
In contrast, the current environment on Wall Street is "just not in an IPO mode," says one investment banker who requested anonymity. "The firms coming to market are not being well received."
CEOs can take advantage of the lull by preparing for a market upturn. For example, Mr. Abbott says the underwriters of an IPO will demand audited financial statements for three years. He also cautions CEOs against trying to "cash out" by going public, because underwriters may limit the amount of equity the CEO and partners can sell in the IPO.
Management also needs to make psychological adjustments to life in a public company. "You must be prepared to have the market evaluate your efforts on a daily basis. You get a report card every day in your closing stock price," says Mr. Candela.