From IPO to 25 analysts in four years is no mean feat, not least when the company concerned is still technically a small cap. However it does help that Whittman-Hart’s stock price, after allowing for three splits, is 1,200 percent higher than its launch. Ruminating on the trigger for splits, Dean Dranias, the principal manager for IR, admits that $70 per share seemed to invite fission, and philosophizes, ‘You can argue until the cows come home on the value of two pieces of paper as opposed to one, and it may help liquidity, but above all it means we are telling people that good things are happening, we’re on target. A stock split, more than anything else, argues that we are doing well.’
Dranias came alongside as an IR consultant a mere six weeks after Whittman-Hart’s IPO. It was only last May that he actually came on board, when he accepted CEO Robert Bernard’s offer to manage IR for the company. ‘I was flattered,’ he says, ‘It was as if I was part of the corporate family all along. That made the transition very easy.’
Dranias began with PaineWebber, but moved to the Chicago IR consultants Financial Relations Board in 1976 before starting his own business in 1992. He joined the Chicago-based investment banking firm, Dresner Capital Resources, in May 1996 as president of its IR subsidiary, Dresner Corporate Services, where one of his first clients was Whittman-Hart.
No introduction necessary
Since he was often at Whittman-Hart’s office up to four days a week before joining the company, Dranias needed no introduction to the staff there. Even so, he finds that being inside adds new depth to his IR. ‘As an outsider, you don’t necessarily interact with everybody who is part of the overall strategic process.’
Now, in contrast, he says, he’s involved in all facets of the business. ‘That’s important because IR is really a marketing function; you’re really marketing investment appeals which are predicated on the success of the company’s performance and products, its service capabilities.’ Consequently, Dranias not only interfaces with C-level management, but also with the likes of marketing VP Sara Cavin and Laura Field, head of corporate communications.
Dranias admits that in many companies outside consultants are listened to more carefully than in-house sages. However, as befits a company that is above all a consultancy operation, that is not the case here. ‘This organization is structured so that there is a free flow of ideas across the board,’ explains Dranias. ‘If you disagree with management then no-one is going to tell you to shut up.’
Advance preparation
Right from the beginning, hyperactive CEO Bob Bernard realized how crucial investor relations was. ‘We got a good education, we really prepared for the IPO a year in advance,’ says Bernard. ‘We got our house in order with internal business systems, managing the company on a quarterly basis, picking who to work with, what to say, what to do, who to gravitate to from a PR and IR standpoint.’ As a result, according to Bernard, Whittman-Hart was always viewed as a quality firm even while staying in the forefront of the bankers, the analysts, the buy-side and even the retail side.
Even now, the intense Bernard remains the company’s best IR resource, often talking to analysts and investors personally. But he still knows how to delegate: ‘You really want to surround yourself with good people who know better than you,’ he maintains. ‘And we’ve been able to do that. It was the growth of the company that necessitated hiring someone [for IR]. We really wanted to have someone inside who was close to us, representing our best interests, who really knows our background and can help take us to our next level.’
CFO Bert Young concurs. ‘I’m involved very closely in day-to-day discussions and who’s buying and selling,’ Young explains. ‘But as CFO, I rely on the investor relations department a lot. They’re on the front line in communications with our investors. Dean Dranias obviously leads the effort, as part of our overall communications effort in the company, but he keeps me and Bob Bernard very involved. We do a lot of very active meetings. There’s so much going on in this sector, things changing all the time, companies coming in and out all the time. What we do formally is only part of the story, it’s what Dean does all the time, on the phone constantly.’
Wall Street feelings
Dranias feels that his outside experience really came into its own with the company’s successful repositioning this year. It has moved from being a server consultant to an ‘enterprise wide full service e-business solutions provider,’ according to Dranias.
‘Internally, the issues were how does Wall Street feel about this? What are they looking for us to deliver?’ he says. ‘And I was able to tell most of the folks involved in the transition process that what Wall Street wants is validation that we are indeed what we say we are. So that has to be reflected in our web site, in the materials that we make available to the Street, and our participation in analyst conferences and one-on-ones.’
Dranias says his past experience allowed him to provide the perspective of an outsider looking in. ‘But because I’m now also a part of the strategic planning process, I interact with everybody, not just the people who are the focal points for IR.’
So does being a consultant to a consulting firm make Dranias some sort of meta-consultant? He jokes, ‘Consultants are great, but they don’t like to listen to other people’s thoughts, especially another consultant trying to tell them how to do their job.’ Dranias does point out that Whittman-Hart has no such compunctions and is perfectly happy about picking the brains of qualified outsiders.
Making a niche
The company moved from an AS400 consultancy to PCs when they became the norm, and then on to servers and systems integrations and so to its latest avatar, web-centered business development. It has grown along with its market niche, which it always saw as middle market companies with revenues from $50 to $500 mn which shared its ideas about growing their businesses – a goal of 40 percent compound annual growth. Those companies are now growing toward the $1 bn range, and remain Whittman-Hart clients, even as the company keeps itself growing aggressively.
That growth path recently led to a high profile acquisition: in mid-December Whittman-Hart annnounced it was buying internet consulting firm USWeb/CKS for $5.7 bn in stock. The combined company boasts 8,000 employees in the US, going head-to-head with young start-ups such as Scient, Razorfish and Viant. Though the merger announcement put a dent in both stocks because of fears over integration difficulties, some observers say the deal features tremendous synergy – Whittman-Hart’s e-business savvy combined with USWeb’s design and interface expertise.
Coverage clout
Whittman-Hart indeed has outstanding research coverage – 25 analysts. That’s no accident, of course, as Robertson Stephens’ Steven Birer confirms. ‘The company stays on top of the analysts, which is important,’ explains Birer. ‘It’s been dedicated to this since it has been a public company: it’s pretty much a model for other companies.’
Two firms were involved in Whittman-Hart’s initial public offering back in May 1996, and for its second offering, 111 days afterwards, the company brought a third on board. Four firms managed the May 1998 secondary offering. ‘We’ve tried to add the kinds of quality market makers and research followers who will give us the recognition our performance and strategy deserves,’ Dranias says.
This is more than just a question of name recognition though, he explains. ‘It also gives us substantial liquidity, since any institution or individual who wants to buy can pick and choose from a variety of spreads – something they couldn’t do if their choice was limited to only one or two houses. So we’ve created the opportunity for investors to price their stock from a number of quality houses, who are doing the research and making the market.’
And Dranias adds, with a measure of proprietorial pride, ‘The quality of the coverage is excellent. The analysts represent some of the best in the industry.’ They have to be fast on their feet to keep up with the fast changing company, Dranias notes. ‘We had to sit down with Wall Street from the middle of the second quarter of 1999 and explain to them, We are an e-business solutions provider. Many of them, buy-siders and sell-siders alike, could not comprehend that we were moving in this direction. It took about six to eight weeks to bring people to a full understanding.’
E-relationships
Playing to the appropriate venues was one way to get the message across, so as soon as the transition began, management seized the opportunity to appear at industry conferences on the west coast, where they explained the e-business market niche the company was filling. However, Dranias concludes happily, ‘As the realization sank in, people began to look at our stock in a different way. From the way that it’s acting, we now have full recognition.’
Perhaps equally importantly, Whittman-Hart’s clients also recognize the change: 90 percent of new business is e-related and new business from old clients is 80-85 percent in the domain, indicating that the company has not just caught the cusp of marketplace changes but established its leadership position in the sector for emerging growth and middle market companies.
Whittman-Hart now has 23 branches in the US and UK, all by their very nature based in commercial centers. As the CEO and CFO drop by the local offices, they will be seizing the opportunity to go to investor conferences, and do buy-side swings to make sure that present and potential investors have a good understanding of the company. ‘If there’s an investor in Indianapolis and we have a very strong operation there, he’s going to feel that there’s some kind of tangible aspect – like there’s a McDonald’s on the block,’ suggests Dranias.
At present 65 percent of the stock is held institutionally and 25 percent internally, but Dranias considers that retail investors are going to become very important in future. Indeed, he envisages a 60/40 or 55/45 institutional/retail split. He is of course deeply interested in what kind of investor is holding stock, checking with Nasdaq daily.
Currently momentum players have an edge over value players. ‘We still have a high turnover in some of our largest holders, but we will move to being a value stock,’ he prophesies confidently, although conditioning that on growth in the technology area.
The other area of expansion is in Europe, where the London office has added an M&A specialist, and where, at the end of last year, the company made a major UK acquisition. Once again, managerial visits at least twice a year combine the IR function with mainstream business. ‘We’re going to be spending more time overseas cultivating our relationships. For example, when we did our secondary offering in 1998, we went to London and Amsterdam and sold a lot of the stock.’
‘The more information we can deliver to Wall Street,’ Dranias sums up, ‘the more credibility we have for ourselves.’
