Buyout Book : Excerpt

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Chapter 1

On April 1, 1997, a smiling Dan Gillis, president of the American division of Software AG, stood on the front stage of a large ballroom at the Hyatt Dulles in Reston, Virginia. Hundreds of Software AG employees packed into the conference room, while others listened in on global conference calls from sites across the United States, Japan, and Israel. Employees arrived early. It was standing room only, a first for an employee meeting of the U.S. division of the German software maker since Gillis was named president in May 1996. In a memo to employees the week before, he had told them only that the meeting was for "an update of our progress" in the first quarter along with a few "special announcements." But there was an air of nervousness and uncertainty in the room. They knew it was much more than a simple update. But was it good news or bad?

There had been a lot of speculation. Employees of the U.S. division were aware that their German parent was losing money and wasn’t producing new products. Morale was low and turnover had risen to 40 percent. Too many financial types were working late hours. There were endless closed-door meetings and hosts of lawyers and other "suits" swirling in and out. Rumors raced through the hallways of the Virginia headquarters that the company was on the block. At one point, it looked like SAP might buy the German firm. Maybe Oracle would buy them. Then the word spread that Gillis was firing his entire executive staff. Worst of all, there was a rumor that Computer Associates would be the acquirer, a frightening prospect that would have meant the loss of probably 60 to 80 percent of their jobs. Most people were sure the news could only be bad.

So now, as the lanky president stood at the front of the room and joked that he hadn’t brought them together to discuss the dress code, there was a sense of nervous expectation. After a few opening remarks, Gillis put up a slide stating: "Software AG has now become an independent software company." There was a half-second of stunned silence. After all, it was April Fool’s Day. Could this be a joke? Then the entire room filled with applause. "As of yesterday, we signed all the papers and became an independent software company," Gillis said, pausing between each of his last words to savor the victory and allow the concept to sink in.

As Gillis described the deal and answered questions, he kept driving one point home: The company was now the master of its own destiny. "The key point is our success now is totally dependent on us," he told them. "I think in the past, we tended to look for excuses, and we could point to our parent company as an excuse. It is no longer an excuse. There is a tremendous upside here, but there is also a tremendous responsibility. We control our own future now. And that feels really good to me. How about to you?" Robust applause and wide grins, with just a hint of nervousness, reflecting the trepidation of cutting loose from the mother ship.

But for a company that had always waited to see what headquarters in Germany would say before proceeding, it was a hard message to absorb. Toward the end of the Q&A session, a question came in over the loudspeakers from an employee in Seattle. Gillis had told employees that the buyout would allow the U.S. company to pursue its own software development and acquisitions. The caller asked, "Are we constrained in any way from acquiring or selling technologies that may fit our market but not Germany’s?" In answer, Gillis pointed to the overhead and read, "Independent software company. Thank you." After the exhilarating applause died down, he continued, "We are in no way constrained in our strategy. No way. We can set our own strategic direction and it is our own. Nothing can stop us from implementing it. That’s got to sink in, doesn’t it? I think that’s the power of this. That's really what’s happening."

He paused. "What do you think, is this a great announcement or what?"

As he listened to the applause, even Gillis didn’t know at that point how great an announcement it really was. None of us knew.

Banging the Gavel on the NYSE

The announcement was the culmination of months of nonstop labor by Gillis and CFO Harry McCreery to make their dream of ownership a reality. They had maneuvered a multinational minefield of complex and vexing issues to hit a target the size of a pin. They had worked with our private equity firm to put together financing for the deal and hammered out an agreement with their German parent in an incredibly tight timeframe driven by the parent company’s German banks. Gillis and McCreery had managed to cut the company loose and saddle it up.

"[Many] folks were very doubtful that we could do this at the beginning," Gillis told the employees. "The Germans were doubtful. We were doubtful sometimes. There were so many complex pieces that all had to come together."

They had a challenging road ahead, but it would lead them to one of the most successful management buyouts ever. Net income more than doubled from 1996 to 1997, and revenue increased 16 percent to $181 million. Gillis and his team put in place a bold new strategy to rapidly grow through strategic acquisitions and by developing highly complex middleware, which links legacy mainframes to distributed computing networks and the Internet. Turnover among the employees plummeted as more than 80 employees received stock options for the first time, and morale shot through the roof in the glow of their independence. Customers and suppliers could feel it, too.

Just a little over seven months after completing the deal on March 31, their IPO reached $10 per share at the close of trading, which meant that the $1 million stake invested by the management team already was worth more than $40 million. Gillis and McCreery, who seven months earlier had been division managers, were now on CNN, wealthy beyond their dreams and captaining their own ship. Gillis was seen by millions on TV doing something that even the most powerful corporate chieftains can only dream about: He was grinning above the floor of the New York Stock Exchange, banging away with the gavel to close trading. How did they possibly get there?

The American Management Dream

It began with the dream of a "peddler" and a "beanie." In McCreery’s view, the world of Software AG was divided into "techies," "beanies" (i.e., the financial bean counters), and "peddlers" (i.e., marketing types). Gillis was the outsider. He came to the company in January 1995 after another firm acquired Falcon Microsystems, where he served as executive vice president. Gillis became senior vice president of sales at Software AG and was named president in May 1996. McCreery chided Gillis by calling him "a peddler." Gillis wasn’t slick but was a hard-driving and straight-shooting Rhode Islander--a creative leader with the vision to dream the big dream and the persuasiveness and persistence to make it happen. His simply adorned office is dotted with photos of family, along with pictures of himself with visiting luminaries such as Steve Forbes, George Bush, and Colin Powell. Beneath an exterior as polished and soft-spoken as a private school headmaster is an unexpected passion. It showed itself in the management buyout and in his one indulgence that followed his newfound wealth: a sleek, black Mercedes 500 sedan with plates reading AGS (his NYSE ticker symbol). He is justifiably a little proud of this achievement.

Gillis grew up in Providence, Rhode Island, the middle of five children, son of a railroad bridge foreman. He attended private schools and earned a BA in management from the University of Rhode Island before hitting the streets as a salesman for Kodak. He had a distinguished two-decade career in the computer industry, working at IBM, Exxon Office Systems, and Wang. In his last job prior to Software AG, Gillis had helped grow Falcon’s revenue from $13 million to more than $180 million before the firm was sold.

McCreery was the insider, who had worked at the company for a decade and understood what made it tick on both sides of the Atlantic. He is a beanie, the complex-deal strategy guy who can run the numbers through their paces and make them dance. He has the studied cynicism and appearance of a tough Chicago cop. (He later commented on the buyout, "I just did what needed to be done, same as I always have, just with a more rewarding result.") This gruff attitude is tempered with an easygoing rapport and pervasive sense of humor. Above all, he is a contrarian. In a sea of high-powered European machines in the Software AG Americas (SAGA) parking lot, his is the lone GMC pickup.

As a kid, McCreery wound transformers in his father’s shop in Chicago. He served as a gunner and mechanic in Vietnam, and when he returned, he ran a service station before earning his accounting degree at Walton College and earning his CPA. After cutting his teeth on the books at A.B. Dick, he served in senior executive positions with high-tech companies such as Syquest Technology, Automated Microbiology, and MAC Associates. He had led turnarounds and worked on half a dozen start-ups. He thought he had put that life behind him when he started with Software AG--until this deal came along.

About the only thing Gillis and McCreery had in common was that they both had served in Vietnam, where they had demonstrated their stamina and ability to hang tough under fire. And they were back in the foxhole again. They appeared to be an unlikely combination--in their professional backgrounds, appearance, and personalities. But they proved to be the perfect duo, because their differences gave them the complementary aptitudes and attitudes needed for success.

Gillis and McCreery had built Software AG Americas into a successful firm--doubling profits between 1995 and 1996. But their German parent was in deep financial trouble, so it looked as if their reward for their successes might be a German bankruptcy or an acquisition that would dismantle the firm. It looked like a dark time. On the other hand, they thought, this might be the moment they were waiting for. It could be the opportunity to do more than run the company. This might be a chance to own it.

The Opportunity Presents Itself

About five months after becoming president in 1996, Gillis was standing on the other side of a table in Darmstadt, Germany, in Software AG’s austere boardroom, staring down Dr. Peter Schnell. Schnell was the brilliant and mercurial technologist who had founded Software AG twenty-five years earlier. Schnell had built it from a start-up to a leader in mainframe database technology, driving revenue above $500 million by 1989 and becoming one of the wealthiest men in Germany. At one point in the 1980s, he was the king of German technology, with a company as large as Microsoft and bigger than SAP--and an ego to match.

Schnell, however, made the mistake of dismissing client/server systems and relational databases as inefficient computing platforms, and so failed to develop new products for these fast-growing segments of the market. From 1989, as global software continued to explode, his company’s revenues flatlined. High overhead and unfocused, dictatorial management created inefficient operations that were bleeding red ink. These years of missteps helped bring the company to the brink of bankruptcy.

Gillis was in Germany for a monthly meeting of the executive committee. As he leaned across the boardroom table, he told Schnell that the company was going to lose DM 57 million. Schnell, who refused to admit there was a problem, went ballistic. He ran up and down the table, yelling at Gillis. "The partners and managers knew I was right, but nobody would tell this guy," Gillis said. Schnell was in denial and the company was cratering. Iceberg? What iceberg?

It was now October. Gillis knew they had a limited window of opportunity in which to act. He knew that their cash-strapped and hemorrhaging German parent would probably need to sell off assets to pay off debt coming due in April 1997. He knew there was a good chance the company would go on the block, and that he wanted to be the buyer. If anyone was going to own this company, it would be them. But how do you acquire the $160 million division of a large German software company that is lurching toward death? It’s no small order.

Back home after the October meeting, Gillis called McCreery and controller Gary Hayes together. "Look guys," he said. "This is not going to continue this way. One of two things is going to happen. The Germans will probably bring in new management that will demand we make more money, so we might as well start making more money and get ahead of the curve. And number two is, if we make some money, maybe we can buy this place. Nobody is going to be interested in it in the condition it’s in now, so we’ve got to shape it up as fast as we can."

McCreery had frequently contemplated the possibility of buying the company, but it had always looked pretty unlikely. The German leadership would have to be pushed to the wall to part with its U.S. division. The U.S. software market was the fastest-growing and most sophisticated in the world. They wouldn’t let it go unless there was no choice. Now there was no choice, but the deal was still a long shot. "It was finally clear they were going to hit the wall and there would be a five-day window of opportunity," McCreery said. "If you could key it up and the stars aligned, it could work--so it wasn’t crazy, but it was pretty far-fetched at the time. The Germans just don’t sell stuff."

Management also needed to find a financing partner who would wait in the wings for the time to be right, then pull the deal together almost overnight. "This [was] buying a rather old company from a German parent," said McCreery. "And you had to find a buyer who was politically correct to the Germans, which rules out 95 percent of the people capable of financing a deal that size. We knew the Germans would want a simple deal, quick, get it over with, no gaming and no arguing. You really had to bring the buyer and seller together and you had one shot. It had to be a match made in heaven."

Gillis held his tongue at the executive meetings in Darmstadt, but he kept working on his plans. After the October meeting, he asked a board member to approach Schnell privately about selling the U.S. firm. He thought it was an astute and politically correct way to approach Schnell, but the word came back quickly: "No way." The German board, finally aware of the magnitude of the problems, had already decided to take the rare and dramatic step of replacing the founder. Schnell had been forced out and a successor was quickly named, but he had not yet taken the reins. Gillis would have to bide his time a bit longer. "They were in a position where they had to raise capital," Gillis said. "They had to sell an asset. They had all the physical assets tied up with the bank. So the only thing they could sell was something of value, which was us."

The $200 Million Phone Call

A lot of great investing hinges on being in the right place at the right time. In October 1996, the gods of buyout investing were clearly smiling down on me. I received a call from Phil Norton, the CEO of e Plus, a local computer finance and services company. McCreery leased computers from e Plus and had contacted him to see if he could put him in touch with equity firms that might be able to back the Software AG deal. I had joined the e Plus board just four months earlier at the recommendation of my partner Fred Malek. I had known Software AG from my days as a high technology investment banker at Morgan Stanley, so I was interested when Norton pitched me on the opportunity. The company had a strong, if tarnished, legacy and a good reputation for technology.

Two days later, on October 7, 1996, over lunch in the bustling Market Street Bar & Grill in Reston Town Centre, I met with McCreery and controller Gary Hayes along with Norton and e Plus executive vice president Bruce Bowen. I found out that the U.S. division had an outstanding customer base of 1,500 companies, including Sprint, Morgan Stanley, Delta Airlines, the Federal Aviation Administration (FAA), and Georgetown University. The U.S. unit was growing, but had not been allowed to pursue acquisitions and was forced to send any cash it generated back to Europe to bail out its bleeding parent. It appeared the German company might be forced to sell the business and the expected asking price of $85 million was in the right range. I was impressed with the managers and that they were willing to put $1 million of their own skin in the game. It almost sounded too good to be true. Something had to go wrong soon. There are hiccups in every deal.

Both sides survived this first mutual interview. In November, after his dance around the table with Schnell, Gillis and McCreery met me one evening in the noisy lobby of the Reston Hyatt. There, on the wicker couches under the sweeping glass skylights, we began to discuss the terms of the management agreement. Gillis and McCreery had done their homework and knew the rough terms of management deals. We agreed management would receive options to acquire 15 percent of the stock at the investor’s buy-in price. Of that, 12 percent would be granted at closing and the rest contingent upon meeting performance goals. Both sides knew that a 15 percent management interest was at the high end of the normal range at the time, but they had created the deal opportunity and had a strong strategy moving forward. I looked Gillis in the eye and we shook hands. We were ready to go.

The options would vest over a three-year period and we wouldn’t touch the current management compensation system. Management would make an investment of up to $1 million for additional equity. For all of us, this was the most important deal of our careers, yet the agreement had just four points and fit onto a single sheet of paper.

Keeping management compensation sacrosanct ended up being our ace in the hole. Another buyout firm that was talking with Gillis and McCreery about the deal had a different approach. The investor asked Gillis what he made. Gillis responded that his total compensation with bonuses was more than $600,000. The investor suggested that it was too high and might have to be adjusted. Obviously not the right answer. During that one fatal phone call, the investor had demonstrated his penny-pinching style. This was incredibly shortsighted. If he was willing to be tight-fisted even before the deal was struck, Gillis thought, it was painful to imagine what he might do when he became the majority owner of the company.

In this case, our rival lost the deal. Given that our investment of under $30 million had grown to more than $200 million at the time of the initial public offering (IPO) and much more afterward, that call had cost that would-be investor well over $200 million--a little pricey no matter what your calling plan. These deals are all based on trust, on all sides, and it doesn’t take much to spook a potential partner. This incident helped to highlight our emphasis on supporting the managers we back. It is penny-wise and pound-foolish to sink so much into a company and then quibble with the very people who have the power to make the investment pay off.

In my meetings with Gillis and McCreery, we had put together the structure of the buy-side of the deal. The management agreement was set and the overall strategy for financing was in place. Now, all we needed was a willing seller.

Becoming the White Knight

Gillis knew it would take a little while for the new CEO to come to the full realization of the company’s predicament. As expected, when CEO Erwin Koenigs appeared at his first meeting in Darmstadt, he was upbeat. "In December, he still felt pretty good," Gillis recalled. "He was going to save the world."

But then the full weight of the company’s problems hit him. His "welcome to the company gift " was finding out that he was losing $3 million a month and had $70 million of bank debt coming due in 120 days. Rough day. Shortly after Koenigs had this epiphany, Gillis received a troubling call from his German boss that the company may go bankrupt if other banks decided to call their loans. It was only eleventh-hour negotiations by the aggressive and intelligent Koenigs that kept bankruptcy at bay. Even so, they only earned a reprieve to show a profit, raise cash, or face default by March 31. There followed a brief period of euphoria when it looked as if SAP would buy out its German compatriot, but the SAP board ultimately turned down the deal. There would be no white knight to ride in to save them. The clock was ticking.

Koenigs was direct. He started the January meeting with the words, "Gentlemen, we have a problem." Bank loans were coming due very soon. He began to lay out the situation and said they would need to do something dramatic. The situation was utterly grim. Koenigs was telling his top management team that this venerable, thirty-year-old global software giant was going under. They were toast.

Most executives at the meeting were probably tuning him out and trying to remember where they could dig out the latest version of their resumes. They hoped Microsoft was hiring. But, oddly, deep down inside, one man in the room was smiling. It was the U.S. country manager, Dan Gillis. This was the moment Gillis was waiting for--his whole life. At the break, he walked up to Koenigs and asked him, "Do you have a backup plan?"

"No," Koenigs replied.

Then Gillis uttered the most important phrase of his career: "I have one for you."

"What’s that?"

"I’ll buy the U.S. company from you."

Koenigs got it immediately. It would be a triple bank shot, and Gillis had just teed it up for him. He would sell all or a piece of the U.S. business, pay off the banks, save the company, and preserve German jobs. The deal would put the money into the coffers of the German firm in time to meet its March 31 bank loans. But that was less than three months away. Could that get done? Koenigs was planning a trip over to the United States in two weeks, and Gillis suggested they meet then to discuss the deal.

On January 30, 1997, Koenigs flew into Washington for a meeting with the managers of the company’s U.S. division. When Koenigs arrived at the Reston Hyatt, he was having second thoughts about the deal. He wasn’t keen on the idea of getting into bed with some hotshot U.S. financiers. He was afraid that after selling the company, the U.S. buyer might flip the acquisition for a tidy profit. McCreery had already spent the evening and entire day preceding Koenigs’s visit arguing the merits of the deal with German CFO Volker Dawedeit. After prodigious efforts--and even more prodigious alcohol and food consumption--Dawedeit agreed that there really was no other way to save the company. This was their only marketable asset. They couldn’t sell stock in the parent because the equity was tied up in Schnell’s nonprofit trusts. Koenigs still had to be convinced. The discussions with Koenigs stretched from 5:30 p.m. until well after 10 p.m." Finally, he agreed. An excited Gillis phoned me at 11 p.m. to tell me it was show time. We were set to meet with Koenigs at 8:30 a.m. the next day.

No Second Chances

I was nearly asleep--ready to dream about once-in-a-lifetime deals like Software AG--when Gillis called. He said he thought we could make a deal, but we had just one day to do it, and it had to be tomorrow while Koenigs was in town. As I hung up the phone and looked at the dark ceiling, I was highly skeptical. Could a deal that came together so rapidly hold together? This was a key German asset. Would they really sell it? And what about Koenigs? I’d never met the guy and in ten hours I was supposed to sit across the table from him and do an $85 million deal.

Gillis and McCreery had briefed me fully on the terms of the structure, but chemistry with Erwin Koenigs would be crucial. My father is German, so I hoped I might understand Koenigs a bit. And I was prepared to bring out my two-word German arsenal if needed: "Wie gehts?" If he followed up in German, I’d be dead. More seriously, if the chemistry was wrong or he got the sense we’d damage his position in the U.S. market, the deal would be history. There was no warming-up period or informal meetings over cocktails. We had just one shot to make this work. If Koenigs as much as didn’t like my necktie, the deal could be over in minutes. I slept poorly as I churned over the day ahead. It might have been less stressful if I were lukewarm about the deal. But I knew if we could buy this company with this management team, it could be a screaming homer.

We met early the next day in a conference room at Software AG’s Reston headquarters. The meeting began well and only got better. Koenigs was a disciplined guy but very direct and struck me more like a decisive Silicon Valley CEO than a German bureaucrat. He was a man of action who needed to get something done, and his CFO, Volker Dawedeit, was a mountainous guy with a wonderful sense of humor. It is our style to be highly flexible as partners and we pride ourselves on not acting like snooty New York bankers. Koenigs and Dawedeit responded well and the chemistry was good. We got down to terms quickly and, amazingly, hammered out the deal. But Koenigs was blunt and any misstep on our side could scuttle the deal. We had to nail it. Within a week, we had exchanged a few pages of general guidelines over international fax. These documents would ultimately become more than 300 pages of dense purchase documents once the lawyers were through with them. It was a long way to the closing dinner.

Every day, Gillis called Koenigs to make sure he was still on board. The deal of his lifetime had been put together so quickly that he wanted to make sure there wouldn’t be a change of plans. One day in March when he called, Koenigs asked him expectantly: "When are we going to close this deal?" Gillis breathed a sigh of relief. Koenigs needed this deal as badly as he did. "It was then I knew the deal was going to go through," he said.

Decisions in Darmstadt

In early March, I went with Gillis to Germany to present the plans to the German parent company board of directors (called the "Vorstand") and labor board. The labor board, which is comprised of employees, plays a central role in German company corporate governance. The board's reaction could make or break the deal. About 50 labor representatives gathered around a conference table for the presentation.

The fact that I could manage to fire off a few rough words in German at the meeting didn’t hurt. We knew things were going pretty well when one of the board members, smiling, recognized my last name as German and asked if I had relatives in the shipbuilding industry. I didn’t, of course, but at least they were warming. The key selling point was that the deal would allow the company to make its bank payments and protect the more than 1,400 German jobs. They also felt comfortable with the fact that we were backing the incumbent American management team they had come to know and that we wouldn’t dramatically alter the strategy after we controlled the asset.

Although we were hoping for a favorable outcome, I wasn’t prepared for the reaction we received. At the close of the presentation, the representatives began pounding their fists on the table. I didn’t know whether this meant "Throw this bum from D.C. off the balcony" or "Let’s close." But they were all smiling, so I assumed, as I later found out, that this was a sign of approval. It was music to our ears.

Suspicions of Affairs

The work was relentless. Gillis and McCreery were in a race to see who could get to the office first. Gillis finally conceded the competition when he found out McCreery was coming in at 3 a.m. The two financial people in McCreery’s office were working night and day hammering out the details of the plan. The work was so intense and so secretive that the wife of one of the men later told Harry she suspected her husband of fourteen years might be having an affair. After all, he was working eighteen-hour days, wouldn’t tell her what was going on, and came home every night with a smile on his face.

And perhaps she wasn’t too far off the mark. For the core group of people who worked on the deal, most of whom had spent their careers chained to large corporations, this dalliance with a dream was risky business. It was a step away from the button-down corporate existence, giving up the tired German parent for the excitement and romance of a start-up. With this kind of heart-pumping passion, was there any need for sleep?

Independence Day

Sometimes there was a bit too much excitement. Two weeks before closing, our lead lender, who was providing $15 million in financing, pulled out. We couldn’t believe it and immediately went into crunch mode. The software business was a tough sell to the bankers in the first place. There are few hard assets and the technology is difficult to understand. Now, with the deal deadline staring us in the face, we had no financing. Every deal has a visceral panic time and we had just hit ours. Sweat was beading on our foreheads. Miraculously, McCreery pulled out all the stops and found another bank to step in and back the deal. That got him the "deal MVP" honors, hands-down. "At the last minute, it was put together with baling wire," he said.

The closing on the night of March 31 was almost anticlimactic, with a bevy of lawyers brooding over the fine points of painstakingly detailed documents in the Washington offices of Thayer counsel Arnold and Porter. Anticlimactic for everyone except McCreery, who, wrestling with details until the end, finally breathed a sigh of relief. He did a victory dance in the office. Free at last.

While Gillis and McCreery prepared painstakingly for this deal, they also got some breaks along the way. "It was a lot of luck," McCreery said. "We chose the right partners. They threw the founder out at just the last minute. A month later and we might not have gotten the deal done."

In the year that followed the April 1 employee meeting, morale rose, turnover dropped by more than half, productivity increased, and the firm undertook an ambitious program of R&D. Within six months, they had made their first acquisition. Gillis brought in expert marketers from Iomega and hired a chief technology officer along with more than 100 employees. The company, which became known as SAGA Software, began developing its own products that would transform it from a software distributor to a creator. They established a strategy to lead in middleware, the software that links the Internet to legacy mainframes.

Even with its East Coast location, the company was becoming downright hip. Gillis started out one employee meeting by donning sunglasses and moonwalking across the stage. No Dorothy, we are definitely not in Darmstadt anymore.

The Road and the Claw

The roller coaster ride was just beginning. Because the new company was performing so well, the next step was to start a grueling two-week roadshow leading up to the IPO. The IPO was a little earlier than we had originally anticipated, but the company and the market were right. Many people in finance like to endlessly debate the merits of timing an IPO, but for me the rule is simple: You get it done when the market window is open. You have to feed the ducks when they’re quacking.

The warm-up act on the way to the roadshow was weeks of presentations to bankers, not to mention eighteen- to twenty-hour days preparing Securities and Exchange Commission (SEC) filings. Just before the road show started, Gillis ran his presentation by the bankers at BancAmerica Robertson Stephens in San Francisco. His presentation, designed by a committee of investment bankers, landed with a dramatic thud. It drifted all over the place. It had no punch. There was silence. Then, one of the older sales representatives looked up and said, "I don’t get it." Gillis and McCreery looked at each other and couldn’t believe it. I was in the back of the room, bleary-eyed, watching our dream of an IPO evaporate. If the bankers didn’t get it, how could they sell it to investors? Crunch time again. The bankers gave them suggestions and discussed pricing during a five-hour, five-wine-bottle dinner, which eased a little of the pain of the day’s performance.

Gillis and McCreery had started that first day on the road at 5 A.M. and didn’t make it back to the elevator of their San Francisco hotel until 11:30 P.M. And they still didn’t even have a final presentation. McCreery pushed the button for the elevator and looked over at Gillis. They were absolutely whipped, yet they knew there were more than twenty days like this ahead of them.

"How did you like your first day?" McCreery asked.

The two men looked at each other and burst out laughing. The elevator doors opened and shut. Another elevator opened and shut. Still they couldn’t get on. They were on the floor laughing. "We’ve got three more weeks of this," McCreery thought. "I’ll never make it."

Gillis and McCreery tore the presentation apart the next day on the plane from San Francisco to New York. They threw out all the investment banker’s advice and honed the pitch the way they wanted it. If this thing was going to flop, at least it would do so on their terms. The new presentation was a dramatic improvement and played to rave reviews in meetings with analysts and individual investors. They gave sixty-eight one-on-one presentations and about a dozen investor breakfasts and dinners in some twenty U.S. and European cities.

They flew from Kansas City to Minneapolis to San Diego to London to Edinburgh, typically touching down in three cities per day. When the roadshow started, they planned to be austere. They needed clear heads, they reasoned, so they decided they would be teetotalers until it was over. No beer or wine for the whole roadshow! Discipline! By the end of their first day, they got on their third flight and demanded two beers, followed by two more.

One evening, they had a dinner meeting scheduled with an investor in a San Diego restaurant. There was a noisy retirement party in the background. The investment banker had arranged for a massive tray of seafood. Gillis and McCreery picked at it as they waited for the investor, who had gotten lost. Finally, a diminutive woman entered the room and sat down at the table covered with crustaceans. They offered her something to eat. "I can’t eat seafood," she said. "It makes me sick." There were crabs and lobsters everywhere. Gillis and McCreery burst out laughing. Needless to say, she didn’t buy the stock.

But that wasn’t the last they saw of that seafood. The next morning at 6 A.M., the two men were ready to start another day of pitches in San Diego before heading out to Los Angeles and San Francisco. At their first meeting, Gillis opened the book and a crab claw fell out onto the table.

At one point, after a series of twenty-hour days, Gillis ran out of steam. In the middle of an afternoon presentation, he just couldn’t speak anymore.

"I’m out of gas," Gillis whispered to McCreery. "I don’t think I’ve got it in me to finish."

"You’re not going to die on me, are you?" McCreery asked.

Through an act of will, Gillis took a breath and made it through the presentation. Such is the glamour of leading an IPO.

Looking Back

More than two years after closing the original management buyout, Gillis, McCreery, and I met again in the Market Street Bar & Grill to look back. Back on that auspicious day in late 1996 when I had first met McCreery at this same spot to discuss the deal, they were crazy dreamers who actually had the chutzpah to think they could pull off this wild deal. Now they are leaders of one of the most successful management buyouts ever--and multimillionaires. And through that one deal, I realized one of my largest business dreams and became chairman of the board of a wonderful software company publicly traded on the Big Board. A lot has changed.

Across my desk, I see hundreds of potential deals that are just as crazy. Many fall by the wayside because managers don’t have the vision, know-how, or guts to make them happen. Gillis and McCreery would be the first to tell you that this roller coaster is not for the faint of heart. But it is one hell of a ride.

"Everybody tells you what you can’t do and you have to totally ignore it," Gillis said. "They say you can’t buy it from the Germans. You can’t take it public. You can’t grow it. You can’t make it profitable. You can’t do your own products. Don’t listen. You just have to do your own thing. Then, once you do it, everyone says, ‘I knew you guys could do it.’ You get all this outside noise, but you just have to ignore it and keep going."

Was it a good deal for the German parent? Absolutely. Software AG Germany, snatched out of the jaws of death, survived and grew nicely under Koenigs’s and Dawedeit’s leadership. In 1999, following the U.S. example, Software AG did its own IPO--the largest European software IPO ever. It is now is itself a public company with a quarter billion dollars in the bank. It also still retains a stake in the U.S. firm and receives a large and growing royalty stream on product sales. "Tell me that was a mistake," said McCreery. "You freed us. We send through a lot more money because we are free. You’re a healthy, viable company and it turned around the day you did the deal."

I asked Gillis and McCreery: How has this changed your life? "Dramatically," says Gillis. And McCreery chimes in wryly, "What life?"

"Oh, it’s changed dramatically for me and for Harry," said Gillis. "We’re both financially much more secure than we ever were before. It has been fun to do a deal like this. It was exciting, and I think it’s just starting. There have been ups and downs trying to make it work, but I think we’ve got a good management team and we believe we can make it happen. We’re gaining momentum."

Bringing Their Dream to the World

What was the high point of the experience? Both men agreed it was when they took their new company to the New York Stock Exchange with the IPO on November 18, 1997. The night before, we all drank brandy and smoked cigars at the Windows on the World restaurant at the top of the New York World Trade Center. The next day, we were there for the opening bell and stayed at the exchange through the day--watching the stock, which had a value of $1.47 when we bought the company six months earlier, climb to $10.25 at the close.

At the end of the day, McCreery woke up Gillis from the sofa where he had crashed just off the NYSE platform. The president of the NYSE led Gillis, McCreery, and me, along with other employees and family, onto the crowded platform overlooking the exchange. The trading floor below seethed like an anthill. Gillis slid the Lucite cover off the red bell button. It looked like the kind of button the president would push to launch a war. At fifteen seconds to 4 P.M., Gillis hit the button that starts the powerful, capitalistic chime of the closing bell and held it down with his left hand as he pounded the large, weathered wooden gavel with his right. It resounded against a pitted wooden chopping block where hundreds of leaders of industry have brought their dreams to the world. CNN and the world looked on. On the third blow of the gavel, the bell stopped ringing and the trading floor erupted into applause.

"That day was really a high point for me," said Gillis. "My family was there. The management team was there. We were all there. We’d just worked our asses off to get there."

"I just wish we could remember it," said McCreery.

"We’d done the deal," Gillis explained, "went through the banking, did the roadshow, and all of a sudden, you know, the culmination is you end up in New York at the NYSE and you’re absolutely exhausted. You’re really running on nothing."

"Yeah," said McCreery. "But it doesn’t get any better than that. It doesn’t get any better than that."