The First Billion

"Yes, it is time we offer shares in Mercury to the investing public," said Kirov. "Time to show the world Russia is no longer a second-class country. That Russia is not a land of criminals, for criminals, and by criminals. That rights of ownership, once documented, are respected by rule of law."

"I couldn't agree more," said Gavallan, liking the man: the muted confidence, the palpable determination. Of course, if Mercury Broadband had been solely a Russian company, as Kirov was implying, Gavallan wouldn't have touched it with a ten-foot pole. But with operations in Switzerland, the Czech Republic, and Germany- and even an R &D facility literally just up the road in Palo Alto- Mercury Broadband deserved to be called a multinational, and multinationals were exactly the kind of client Gavallan was looking for. "The timing is ideal. The market's hungry for a first-class international operation like Mercury. I'm confident an offering would be greeted favorably."

"I am of the same opinion," said Kirov.

"Mercury's revenues have demonstrated a pattern of consistent growth. You have a solid record of earnings and a sustainable business model. We've taken a close look at the financial statements you so kindly provided, and my colleagues and I believe an offering in the neighborhood of five hundred million dollars is realistic."

"Five hundred million?" Kirov pursed his lips, his expression puckered with uncertainty.

"For ten percent of the company," Gavallan hastened to explain. "We'll go out with fifty million shares priced at ten bucks per, then float another ten percent in a year when the market sees what a great job you're doing and values the company accordingly. We don't want to sell Mercury short before you realize your true worth."

Normally, if a company met its revenue forecasts, it could count on floating additional shares within twelve to twenty-four months at a price significantly superior to the original offering. It was important, therefore, that the client not give away too much of itself at a less than maximal price.

"So you believe Mercury deserves a valuation of five billion dollars?"

"No," said Gavallan. "I'd say ten or fifteen billion, but we'll need time to work the market up to that level." It was crucial he offer Kirov a mildly inflated but marginally realistic value for his company. There were others out there chomping at the bit to get the deal, and he could only guess at how high they had valued Mercury Broadband.

The process of winning the mandate for an IPO was called a "bakeoff" or a "beauty contest," and like all mating rituals it had its own strict rules. Bankers strolled down the runway in their scantiest togs, planted themselves suggestively in the prospective client's lap, and immodestly drew attention to their most lubricious assets- namely, where they ranked in the league tables, the number of IPOs their firm had done in a similar space, and the performance of those stocks six, twelve, and twenty-four months after the offerings.

Next, they turned their attention to the client, whispering tantalizing nothings in his ear about the true market value of the company in play, boasting about the size of the offering- bigger was always better- and giggling, with eager eyes about how diligently they would support the stock. Yessir, we'll keep the price up, up, up. After a drink or two, it was time for the bankers to drop their negligees and show some skin, letting slip that their analyst, invariably an Institutional Investor "first teamer," would start the party off with a bang by issuing a "strong buy" on the stock.

If the client was not yet sufficiently aroused, the banker would trot in the big guns, often the bank's CEO himself, to drive home the firm's overwhelming desire to win the business. With a wantonness that would make even the most jaded harlot blush, the CEO would run his hand through the client's hair, drown him in butterfly kisses, and promise his firmest, longest-lasting, and deepest professional and personal commitment to the stock.

In short, it was a diamond-crusted striptease, and the bank with the nicest tits won.

"I was thinking more in the neighborhood of two billion," Kirov suggested. "We have ambitious plans to expand. When you learn of the full scope of operations, you will be convinced."

"I don't doubt it," conceded Gavallan, not wanting to lose the business before he had it. "Two billion is doable, provided you're willing to part with the extra chunk of your company. I wouldn't advise that at such an early stage."

"Two billion," Kirov repeated, his resolve to be found in the firm set of his jaw, the narrowing of his eyes. "We must have two billion. Now is the time for us to expand. We must strike while the iron is heated."

"Two billion it is. It's big for Nasdaq, but why not."

"I'm afraid that Nasdaq is out of the question," said Kirov, his voice hardly a whisper.