Executive Recruiter Korn/Ferry to Launch Long-Delayed IPO

Los Angeles-based Korn/Ferry International, the world’s largest executive search firm, is poised to go public this week with a long-delayed initial public stock offering.

The IPO, originally slated for last fall, was put aside after market turmoil unnerved investors and prompted most firms to postpone such offerings.

Korn/Ferry plans to sell 35% of the company’s common stock to the public, or 12.5 million shares, at $13 to $15 each, according to its latest filing with the Securities and Exchange Commission.

If the shares sell for $15, Korn/Ferry will raise about $187.5 million, or about 20% less than it expected to raise when it filed for an IPO in August.

The offering comes just after a management shake-up--a development sometimes seen as a signal of turmoil or loss of direction at a company, especially one preparing to go public.

In early December, Michael D. Boxberger, 53, resigned after 19 months as chief executive of the firm, citing “personal reasons.”

Windle Priem, 61, the chief operating officer and vice chairman of the company, became CEO, although he works out of the New York office--not in Los Angeles, where the company is headquartered and where the bulk of the employees are based.

“There’s no question that those kinds of changes make people nervous,” said David Menlow, president of IPO Financial Network, a data firm in New Jersey. “Uncertainty is something to avoid in the IPO market.”

Because the company is in the SEC-imposed “quiet” period, which prohibits officials from saying anything that could be construed as touting their stock, executives could not comment. Boxberger could not be reached for comment either.

Even in the wake of the shake-up, most analysts expect the Korn/Ferry IPO to do well. They point to the company’s global presence and reputation, as well as the recently improved investor appetite for IPOs. Six big deals hit the market last Friday alone.

“Biggest, best at what they do--we still like the company. It’s a real company. It has profits and a real product,” Menlow said. “We’re expecting about as much as a 10% premium on the first trade.”

Of course, premiums for Internet-related IPOs have been even higher, with many stocks more than doubling in early trading.

“If it was ‘Korn/Ferry.com,’ it would have a much easier time,” said Daniel McKinley, an analyst who follows the executive search industry for J.C. Bradford, an investment firm.

Yet the Korn/Ferry deal does have an Internet angle: The bulk of the offering is expected to help finance Futurestep, Korn/Ferry’s new online job-search venture that will mark its first big foray into cyberspace.

But McKinley predicted that the company will use at least a portion of its proceeds to make acquisitions in the fragmented executive search industry.

“Going public gives you the tradable stock to exchange for future acquisitions,” McKinley said.

There is ample room for consolidations in this industry through mergers, analysts said, noting that the 10 largest of the estimated 4,000 executive search firms have only 11% of the $7.3-billion-a-year global market.

One downside of being public for Korn/Ferry, analysts said, is that the executive search industry is cyclical. Although these firms can post big profits when the economy is strong and firms are hiring, a downturn can mean hiring freezes.

Still, some analysts say an economic downturn also can mean management shake-ups and a resulting need for qualified executives, which can boost business and help smooth the ride for companies such as Korn/Ferry.

Korn/Ferry, which was founded in 1969 and has 384 consultants, isn’t the only executive search firm contemplating a public offering. The industry’s No. 2 firm, Heidrick & Struggles, has indefinitely postponed its IPO, though it could revive it at some point.

Both IPOs could be hampered by the poor performance of the only major publicly traded executive recruitment firm. Cleveland-based Lamalie Associates Inc. raised about $25 million with an IPO in July 1997 and then bought a smaller competitor and renamed the combined business LAI Ward Howell. It recently changed its name again, to LAI Worldwide.

Its share price, which peaked at $23.25 last March, began to tumble after the acquisition, especially after the company said earnings for the fiscal quarter ended Aug. 31 would fall short of Wall Street estimates.

The stock now trades around $6 a share on Nasdaq.

The underwriting team for the Korn/Ferry IPO is led by Credit Suisse First Boston. Korn/Ferry expects its shares to trade on the New York Stock Exchange under the symbol KFY.

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Debora Vrana covers investment banking and the securities industry for The Times. She can be reached by e-mail at debora.vrana@latimes.com. Investors should note that initial public offerings are speculative and not suitable for all investors.

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Company at a Glance

Name: Korn/Ferry International

Headquarters: Los Angeles

Consultants: 384

Offices: 71 in 41 countries

Chief executive: Windle B. Priem

Clients: 3,750, including 43% of the Fortune 500

Revenue: $315 million for fiscal 1998

Year founded: 1969