Private Company Director

One Family's Road to IPO

Executives of any company that goes public will tell you the process leading up to the IPO is grueling. For family-controlled Vertex Inc., which began trading on Nasdaq July 29 under the ticker symbol VERX, the challenges were compounded by the COVID-19 pandemic.

Vertex, based in King of Prussia, Pa., is a global technology company that provides tax compliance solutions. When its employees shifted to working remotely, the company had not yet filed its intention to go public with the Securities and Exchange Commission.

The final work on the SEC filing was done in a virtual environment. Meetings to test the waters with investors and the subsequent roadshow — pitches by executives and underwriters to attract interest in the IPO — took place via webcast and video calls.

“The investment community was used to meeting you in three dimensions. And now they had to do it all in two dimensions,” says David DeStefano, Vertex’s non-family president, CEO and chairman.

The right move at the right time
Vertex Inc. was founded in 1978 by Ray and Antoinette Westphal. Their children, Jeff Westphal, Stevie Westphal Thompson and Amanda Westphal Radcliffe, purchased the company in 2000. They serve on the board and control most of Vertex’s Class B voting shares.

The decision to pursue an IPO was reached in early to mid-2019. “The company has been on an accelerating growth trajectory because there are some very strong drivers in the market that are enabling us to deliver more value to our customers,” DeStefano explains. He cites increased regulatory and technology complexities as significant factors. In 2019, Vertex generated revenues of $322 million.

“We started to realize that having access to more capital, whether it be debt or equity, could enable us to grow faster,” DeStefano says. The board concluded that going public was the best capitalization alternative.
“In our role as directors, we agreed with our board that that was the best way forward for Vertex,” Amanda says.

Professionalization pays off
When they took over the company from their parents, the siblings recruited independent directors with large-cap public company experience.

That decision, Stevie says, has been “the Number 1 thing that’s allowed us to grow and thrive and be in a position to eventually contemplate having an initial public offering.”

Vertex made some shifts in its board structure prior to the IPO. DeStefano became chairman in addition to his roles as president and CEO.

Ric Andersen, a Vertex board member since 2008, was named lead independent director. Andersen, who has more than 25 years of consulting and management experience at IBM, Price Waterhouse and PwC Consulting, is a managing partner at a private equity firm.

DeStefano joined Vertex as vice president of finance in 1999 and later became CFO and executive vice president. In 2016, he succeeded Jeff as president and CEO.

When the board raised the option of pursuing an IPO, a robust discussion ensued about “the appropriate governance to best support the company in a public environment longer-term,” says Jeff, the previous chairman.

“The board concluded, after a very healthy debate and consulting with our third-party advisers, that a CEO/chair with an experienced lead director was an optimal model to ensure best board performance, good governance and leadership accountability.”

The company also engaged new legal counsel and new accountants, DeStefano says. Goldman Sachs anVertex employees celebrate opening day, virtually.d Morgan Stanley were the lead underwriters.

The IPO planning phase
With the adviser team in place, DeStefano and Vertex CFO John Schwab began an extensive process. Working closely with the investment banks, they developed a presentation to investors. They prepared SEC Form S-1 (the initial registration form for new securities), ensuring disclosures were made correctly and facts presented properly.

The Vertex story was taken on the road in two phases: first in “testing the waters” meetings to obtain feedback from the investor community, and then, after SEC approval, in “roadshow” presentations to officially offer the chance to invest.

“That journey takes months of effort and ongoing iteration,” DeStefano says.

In March, while the S-1 was being prepared, Vertex’s more than 1,100 employees were making the transition to working from home. The company assembled a cross-functional leadership team to ensure business continuity and implemented remote protocols for its global workforce.

“The employees pivoted very seamlessly,” DeStefano says. “I was very comfortable after two weeks that the team had the ball.” That enabled him to focus on the final elements of the IPO.

Prospective investors found the Vertex story compelling, DeStefano says. “They were blown away, quite frankly, that Fortune 500 companies were so reliant on who we are and what we do — how sticky the business was, how substantial it was. As I wrote to my employees afterwards, I wasn’t bragging; I was just telling the truth.”

The family’s new mindset
Now that Vertex is a public company, the family has changed the way it views ownership — “thinking about a broader pool of co-owners,” Amanda says.

“Probably the biggest change for us personally is that if somebody’s interested, they can delve into the numbers and figure out a lot more than they used to be able to,” Stevie says. “I think we’re prepared for it.”

The G2 siblings kept the third generation informed. “We were the ultimate decision makers,” Jeff says. “But the kids were right there with us.”

Amanda notes that well before the company went public, it had established a professionalized board that approached governance the way a public company would. “So in a lot of ways, it’s not a big change.”

Opening day
The company priced its nearly 21.2-million-share IPO at $19 on July 28, which resulted in the offering raising close to $402 million in proceeds. Shares closed on the first day of trading at $23.93.

According to Vertex’s S-1, the proceeds will help the company pay down debt and fund some of the $123 million special dividend paid to the Westphals in May 2020. The money raised in the IPO will also finance investments in Vertex’s offerings, technology and sales force.

The Westphal family.Like so many other events in the time of COVID-19, the Vertex IPO was virtual. Nasdaq created a two-hour webcast of the opening day proceedings. Nine hundred Vertex employees logged on. They were invited to submit their pictures for projecting on the video display on the exterior wall of Nasdaq’s cylindrical tower in Manhattan’s Times Square.

“Sometimes out of challenging situations, beautiful things actually happen,” Amanda says. “We were all able to share in the bell-ringing ceremony together, not just a small group of people. The folks at Nasdaq did a phenomenal job, explaining to everyone what was happening behind the scenes.”

At Amanda’s suggestion, family members chartered a small bus and traveled to Times Square, eerily deserted because of the pandemic. They stood on a street corner and watched the images projected on the Nasdaq building.

New business partners
Vertex included all its employees in the directed share program, which allows a company that is going public to reserve a percentage of its shares for “friends and family” to purchase at the public offering price.

“We’ve always felt that all of our people were our business partners,” Jeff says. “It’s really nice to formally embrace them in that role.”

“The one moment that really got me to cry,” Amanda says, “was when my cousin’s daughter told me that she was using the money that I gave her for her confirmation to buy Vertex stock.

“My 12-year old little cousin was going to be my co-owner. The responsibility of it feels really different than when it was just us.”

The Westphal siblings say the IPO would never have come about had they not had a solid relationship.

“It’s in a moment like this that the family factor really rises above all else,” Jeff says. “If it wasn’t for our shared devotion to not only the business, but each other, I don’t think we’d take this step forward.”  

Tips from Vertex on going public

Jeff Westphal, Stevie Westphal Thompson and Amanda Westphal Radcliffe, the three siblings who control Vertex Inc.’s voting shares, and non-family chairman and CEO David DeStefano offer this advice for business families considering an IPO:

1. Surround yourself with great advisers. “It’s so critical to have the right set of advisers to both educate you and guide you through certain elements of the minefield,” DeStefano says.

2. Put the right people in your C-suite. “Confidence in the strength and professionalism of your CEO and CFO are absolutely paramount in this process,” Amanda stresses.

3. Have a solid management team in place. “You need to have a team that can run your company while your CEO and your CFO are dealing with the investment community,” DeStefano notes.

4. Develop a pitch that excites investors. Be able to describe why your company is already a success and what its growth potential is. “You need to have a story that resonates with what the investment community is looking for,” DeStefano says.

5. Professionalize your board. Hire independent directors whose expertise will be credible in the public market. “If we hadn’t [already] been striving to govern at the level of a world-class public company for many years, this would have taken numerous years to bring about,” Jeff notes.

6. Engage advisers for the family as a whole. Prior to an IPO, family shareholders will need their own individual attorneys. “So it helped to have some people whose only interest is in the family as a whole rather than one wing or another,” Jeff says.

Directors Record