Minnesota's IPO Blackout Ends

A patchy sky is dawning over the market for initial public offerings after an unusually dark night. In Minnesota, Plymouth-based AGA Medical went public in October, raising $200 million and becoming the first company in the state to do an initial public offering since EnteroMedics and Virtual Radiologic on November 14, 2007. The AGA deal snapped Minnesota’s longest stretch without an offering since at least 1981.

Nationally, the market saw 30 IPOs from July through October this year versus only 14 in the six months before that, according to the IPOscoop Web site. Its publisher, John Fitzgibbon, Jr., says this mini-renaissance is starting to look like the market of late 2003, when IPOs came back to life after another drought.

Fitzgibbon and others believe we’ll see more offerings once the stock market shows that it can sustain its mid-2009 rebound. But what about the market for microcapitalization IPOs, defined for purposes of this column as first-time offerings that raise less than $25 million?

Local Industries Got Their Start

Initial public offerings are not the only growth route for innovative emerging companies. They can go public by occupying the shells left behind by other public companies. Or they can remain private, financing growth from their own profits or by borrowing.

But in Minnesota, a mystique grew up around bite-sized IPOs. Half a century ago, tiny offerings by Control Data Corporation and Medtronic ushered in the “dollar stock” era of the 1960s, when scores of Twin Cities companies went public in an unusually active local trading market. These deals enriched investors and provided early financing for important growth industries here.

A cadre of small investment firms locally underwrote microcap IPOs, built a network of brokers who sold the stocks, and in some cases assigned securities analysts to follow them. Well into the 1990s, they underwrote IPOs that raised less than $10 million apiece for Minnesota companies.

Most of these underwriters are no longer around. Gone are Craig-Hallum (though another investment firm with the same name does operate here), John G. Kinnard, R. J. Steichen, Miller Johnson & Kuehn, Summit, Equity Securities, Kennedy Matthews Landis Healy & Pecora, and more. (In a memorable show of creativity, that last firm named itself after the first five commissioners of the U.S. Securities and Exchange Commission.)