Executive Recruiter News, November 1998, p. 1, 6 - ©1998 by Kennedy Information LLC - Though a depressed market for initial public offering has put the brakes on their Wall Street openings, officials of Heidrick & Struggles, which indefinitely postponed its IPO, and Korn/Ferry Int'l., which is now past its original filing target date, say they are still committed to going public.
The leaders of both firms say they're closely monitoring the market for a green light, but a new survey reported here exclusively by Executive Recruiter News indicates they could benefit from selling the investment "story" to their own industry before looking for outside investors.
Survey says...
The survey of 161 search consultants by Jones-Parker/Starr, a Chapel Hill, NC-based boutique that has become a leader in recruiting search firms executives, shows that many industry insiders are skeptical of search firms as investments. When asked "Would you invest in a search firm?" a whopping 70% of respondents said 'No;' only 22%, or fewer than one in four, said they would be willing to invest some of their hard-earned money in a search firm.
When asked whether they thought an IPO makes sense in the executive search industry, 56% of consultants polled answered 'No.' Some 31% of the respondents said an IPO does not make sense, and 13% were unsure.
Asked if they would be inclined to remain employed by a firm that is going public, 47% of respondents said they would, but 35% replied they would not and 18% were undecided. When asked whether they would consider joining a firm that may go public, 43% answered 'No,' 39% said 'Yes' and 18% were non-committal.
When Jones-Parker/Starr added stock options to its mix of survey questions, the search consultants' feelings about public ownership continued to track against it. When asked whether they would sign a three-year non-compete agreement in return for stock options, 58% answered 'No,' 22% replied 'Yes' and 20% were unsure.
The survey sample comprised consultants from 18 of the ERN20 practices in the industry - including the five largest - and many others. And Jones-Parker adds, there was "more than one respondent in these firms. And the representation among the top firms is very strong."
LAI's Public Life
The bellwether for search firms considering an IPO had been LAI Ward Howell, which has seen its stock price nose-dive, only to recoup some losses of late. But the turbulence in foreign markets and the uneasiness felt by investors has forced the firm to make some changes in its equity model.
To do that, the firm approved a stock option repricing program that gives its employees the means to exchange some of their outstanding options for a smaller number of newly issued options with an initial exercise price of between $8 and $10 each. The company's stock price price closed at $6.75 on Oct.8, the day the voluntary program was made available to LAI Ward Howell employees.
Employees other than executive officers may surrender $12 options for new options priced at $8 each on the basis of 100 outstanding options surrendered for 80 new options. Those who hold options initially priced between $12 and $21.50 may surrender at a rate of 100 outstanding options for 60 new options priced at $8 each. In both cases, the new options will vest over four years, 25% per year. The firm's executive officers, many of whom work as search consultants, may surrender at a rate of 100 outstanding options for 70 new options priced at $10. Their new options will vest only after a three-year waiting period.
LAI Ward Howell chairman and CEO Robert Pearson says the recent downturn in the stock market and the decline of the firm's stock price dulled the effectiveness of options as employee retention and motivation tools. The new repricing program potentially covers 1.5M options, or about 84% of all those outstanding.
Janet Jones-Parker, managing director of Jones-Parker/Starr and former president of the Association of Executive Search Consultants, says her survey of search consultants should serve as a wake-up call for those firms that are considering public ownership.
"The respondents have mixed feelings about whether an IPO makes sense in the search industry. Given the recent stock performance at LAI Ward Howell, it is not surprising that search professionals in general do not have confidence in an IPO," Jones-Parker says.
ERNOTE: It will be interesting to see what happens with the public firms. When the market is strong they'll look like geniuses, and when the market is soft they'll be under attack. They only clear winners will the the existing/selling shareholders.
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