Does Latest Filing Portend A Jump In MN IPOs?
Eagan-based cabinet manufacturer Norcraft Companies, Inc., recently filed to raise $100 million through an initial public offering (IPO)—but does it portend a larger trend of IPO growth to come in Minnesota amid a surge of national activity?
Norcraft, which hopes to use its IPO proceeds to pay off some of its $240 million debt, is the fourth Minnesota company to file for an IPO in two years.
In May, Plymouth-based biotech company BioAmber became the first company in Minnesota to complete an IPO in 2013. Only two locally based companies completed traditional IPOs in 2012. 2011 and 2010 also saw two IPOs each, outpacing 2009, when there was only one, and 2008, when there were none.
While Minnesota has seen a slight increase in IPOs over the last few years, the country as a whole saw a recent spate of IPO activity.
According to a survey released last summer by New York-based financial advisory firm Pricewaterhouse Coopers, IPO activity jumped by 82 percent throughout the United States in the second quarter of 2013. The amount of IPOs listed on U.S. stock exchanges totaled 62 for the quarter, up from 34 listings in the first quarter of the year, and up 88 percent from 33 listings in the second quarter of 2012.
Twin Cities Business recently reported that the national investment community expects an uptick in IPOs, but Minnesota investors are less optimistic. However, with news of Norcraft’s filing, perhaps the rising tide will lift all boats.
Brad Allen, an investor relations expert from Minneapolis-based consultancy KC Associates, believes Minnesota won’t be cut off from the national IPO activity increase.
“If IPO activity across the country is going up, Minnesota will be a part of that, but there is still hesitancy of small companies to go public because of the high costs,” Allen told Twin Cities Business in a Wednesday phone interview. “The biggest challenge for Minnesota companies has been sourcing venture capital funding.”
A thriving financial community is key for businesses to advance from start-up levels to eventually filing an IPO.
“About 10 years ago, Minnesota saw a lot of money managers moving their capital out to Chicago or the coasts; investment banking was shrinking,” said Allen. “Alliance Capital Management and American Express pulled out in the early 2000s.”
In recent years, however, Allen said the state has been drawing the financial community back.
“We used to have a very vibrant financial community and that’s starting to return, and we’re seeing a lot more activity,” said Allen. “Winslow Capital Management got bought by Nuveen Investments out of Chicago in 2008 and Cornerstone Capital Management got bought by New York Life at the end of last year—both moves brought significant investment capital under management back to the Twin Cities. Not to mention, Lake Street Capital just opened up shop here as well.”
“The presence of an active financial industry in Minnesota is what’s going to help small business get to the point where they have the ability to file for an IPO,” Allen added.
According to Kevin Smith, a tax partner in the Minneapolis office for KPMG, Minnesota has been less active in IPOs because of its large presence of med-tech companies.
“There are just a lot more headwinds for medical device companies to go public,” Smith recently told Twin Cities Business. “They have to deal with things like FDA regulations and medical device excise taxes, so the funding just isn’t there to help them enter the IPO pipeline.”
Allen agrees that industry makeup is a large factor in IPO activity levels. “There has been a lot of IPO action in social media; that’s where the appetite has been,” said Allen. “But we’re also going to start seeing it more in emerging companies, in the clean energy and clean-tech industry.”
While the east and west coasts have been more successful in drawing companies most likely to be involved with IPOs, like technology businesses, Allen said there’s no magic in terms of IPO geography. “It’s good companies with access to capital that will attract IPO activity, and hopefully this is just the start for Minnesota.”
Meanwhile, Minnesota entrepreneurs and members of the venture capital community converged at the Minneapolis Convention Center Thursday for one of the state’s largest events: the Minnesota Venture & Finance Conference.