Lernout & Hauspie Speech Products, NV: Financing from Start-up through IPO

This case provides a unique illustration of how a high-tech European new venture starts-up, grows, burns cash, stumbles, adapts, captures value, disappoints, survives on the verge of bankruptcy to eventually achieve in the fall of 1995 among the most successful IPOs on NASDAQ. On 27 November 1995, L&H received an IPO pricing proposal of H and Q at the low end of the pricing range, after L and H had rejected proposals by Robertson Stephens. The proposal valued the company at US $152 million, when its accumulated deficit was $(72) million and its shareholder equity $(37). The case explains the company and its technologies. It then describes the sequence of financing and strategic events that eventually lead to the IPO: early company development, international alliances, several private equity placements, financing on main street and pre-IPO private placement. It provides a lively and timely learning opportunity for an intermediate MBA corporate finance or for a private equity course in three areas: guerrilla financing, the why, what and how of an IPO, IPO valuation.

L and H lends itself extremely well to discussions on the following aspects of an IPO on NASDAQ for a non-American, high-growth firm in a technologically driven industry: What does going public involve? Why do companies go public? When should a company go public, and where? How do you price shares of companies going public? The case provides ample context and background information to develop each of these four points, in general and with respect to NASDAQ, vis-a-vis the company and the state of the market. It also provides a natural lead into discussing the emergence of alternative European markets (EASDAQ, EuroNM, etc.) and the extent to which these markets can actually fulfil the needs of high-tech concerns such as L and H.