ICF International, 9/14/09 public shelf filing. ICF International filed a Shelf Registration for $200 million. Very interesting for a number of reasons. First of all, a “Shelf” registration does exactly what the name implies—nothing. This is not a deal or offering. It is a future offering to the public which is “put on the shelf” for future consumption—like the jar of peaches your grandmother would put up for the winter. ICF is a relatively new member of the local, publicly-traded government IT services club. It weighs in at a decent $450M market cap. It was created by a New York private equity fund called CM Equity—very well-respected and active in this region and in the government industry. This shelf is interesting because shelf registrations have become numerous of late both nationally and locally. And sometimes they actually work. Shelf registrations have a lot of positive aspects, but without running a clinic on shelfs, you should know that shelfs have traditionally been the backdoor method for floating public stock. “Serious” companies and “serious” investment banks always used the front door—a managed, pre-sold secondary or follow-on offering. You know what that is. A company spreads the word on Wall Street that it wants to do a public offering. The investment banks assemble their best and most experienced prevaricators who all show up at the company’s headquarters and beg and harass the company until one or several of them get the chance to lead the public offering. After winning the business, the bankers have an immediate and massive memory lapse regarding the promises made to the company. But that’s okay—in a good market, the offering gets done and everybody is happy. But these are different times. Today, we barely have a new issue public market. The investment banks are temporarily useless because their trading desks don’t have demand from buyers. Shelfs become a company’s attempt to take matters into its own hands. The company essentially announces that “when the time is right” (the filing papers literally say this as if confusing a public offering with male “dysfunction” commercials), then the company will be ready with a pre-filed deal and will unleash its stock. This is the backdoor approach where the company tries to lead with demand and the banks are brought in after the fact. This is no free swing at the ball. It is expensive and time-consuming to pay lawyers and accountants to create the shelf filing and keep it up-to-date. Yet for some companies, the shelf process empowers them, and it sure beats sitting back and doing nothing. In reality, some of these shelf deals are actually getting done, so ICF may be the smart one in the end.
There is more to this ICF filing than meets the eye—particularly for the private equity community. The press reports on the ICF filing only mentioned the $200 million of primary shares that the company would be selling. But the SEC filing reveals an additional 3.2 million shares (another $90M or so) that would be sitting ready to sell from selling shareholders. And who might the selling shareholders be? That’s right—CM Equity and its investors. Absolutely nothing wrong here. In 2006, CM Equity took the risk and helped launch a respected new public company in the region. CM Equity got itself into a position that all funds yearn to be in—the successful sponsor of a public company. It is axiomatic in the industry that after a private equity fund has launched a public company, that fund is supposed to find the shortest path to liquidity and sell its position as quickly as possible. CM Equity’s limited partners do not give money to CM Equity so that it can invest in publicly traded companies. Yet, for a member of the 2006 IPO class, the public markets have not been kind. ICF had its own little operating stumble, but for the most part, CM Equity has been stuck inside of a decent public vehicle. Maybe the shelf will make the difference, because we know that when the moment is right, ICF will be ready.
