More Private, Less Public

In 1994, Philip Wright began tracking publicly held companies that were based in the southwest suburbs of the Twin Cities. In 1996, Wright disclosed in his Southwest Twin Cities Investor newsletter that just two suburbs, Eden Prairie and Minnetonka, were home to 49 public companies. Wright determined that the Twin Cities had more publicly held companies per capita in 1996 than any other metro area among the country’s top 15 markets, except the San Francisco–San Jose region.

In the mid-1990s, with the bulls running wild in the stock market, Minnesota was in the midst of an IPO binge. From 1992 to 1997, 123 companies based in the state went public. Many of them have departed by now—through acquisitions, bankruptcies, going private, being delisted, or going out of business.

Still, some from that era remain. In 1992, Mendota Heights–based Patterson Dental (Nasdaq: PDCO) went public; the supplier of dental equipment and services had a $4.9 billion market cap this winter. Five years later, Eden Prairie–based transportation and logistics giant C. H. Robinson (Nasdaq: CHRW) did an IPO; its market cap ($8.6 billion) is the largest of the state’s Nasdaq companies.

But in the late 1990s, a new IPO slide took hold. One reason was that so much of the nation’s IPO activity then was in the dot-com sector (a niche where Minnesota was not well represented). Then, as the new decade began and the stock market slumped, IPO activity fell off everywhere. In Minnesota, only 21 companies went public from 2001 through 2007—an average of just three a year.

Investor choice has also worked to cut down the crop of public companies. Today, investors have far more places to put their money than they did in the 1960s, when the local OTC market began to grow, or even in the 1990s. Bonniwell points out that in a matter of seconds, investors can call up information on companies around the world. Geographic location has become far less pivotal in driving investment decisions.

What About Competition?

In the current environment, venture capital firms, which frequently cashed out of their portfolio companies through IPOs, now exit more often by selling them.

Smaby says that a sell-the-company mindset often means less attention to building a company that can compete for the long haul, complete with strong research operations and long-time loyal employees. Instead, emerging companies that are bent on being sold focus on developing products in niches that potential acquirers lack.