The Bottom 50: Smaller, but suddenly more valuable

  • Article by: PATRICK KENNEDY and JOHN J. OSLUND , Star Tribune
  • Updated: April 6, 2002 - 10:00 PM

Minnesota had a net loss of publicly held companies last year.

More public firms departed, were acquired or went out of business than were replaced by initial public offerings (IPOs) and in-state transfers in 2001.

This trend, which is consistent with today's harsher economic climate, has had the most impact on the bottom half of our annual Star Tribune 100 ranking of the largest publicly held, Minnesota-based companies.

While the companies at the top of our list continue to grow, the floor continues to sink. In 1998, it took at least $77.1 million in sales to make the ST100 list. That threshold has dropped steadily each year to $43.7 million this year.

According to Star Tribune estimates and Bloomberg News data bases, the number of operating Minnesota-based public companies fell about 11 percent to about 200 from about 225 a year ago. (In our analysis, we try to distinguish between companies that are operating -- generating revenues, for example -- from those that are registered but commercially dormant.)

To arrive at our 2002 ranking of the 100 largest Minnesota-based firms, we prospected among approximately 177 companies. In years past, we have sent out more than 200 queries.

Cause for concern?

Although it is clear that the number of public companies is dropping, it is less clear whether that fact alone is cause for concern. Sally Anderson, senior vice president for Kopp Investment Advisors, an Edina-based money management firm, doesn't think so.

"It is probably reasonable in a time period when all companies are under stress," Anderson said. "A rising tide lifts all boats, but when the tide goes out, more of the smaller companies are affected."

Daniel Laufenberg, chief U.S. economist for American Express Financial Advisors, agrees that the trend isn't cause for alarm -- at least not yet.

"If you don't have companies coming into that Bottom 50 during good times, that's a concern," Laufenberg said.

But one veteran executive with experience running small, publicly held companies are not so sure the numbers will snap back to previous levels.

James Hansen is CEO of E.mergent Inc., a small public company that in January accepted an offer to be acquired by a larger public company, ClearOne Communications of Salt Lake City. E.mergent, which sells multimedia communication products and services, was consistently profitable and growing -- it completed fiscal 2001 with a record sales of $22.4 million.

Hansen said the costs of just being a public company are rising. Officer and directors insurance and audit fees are rising, in part because of the Enron scandal.

"The cost of doing business from a regulatory standpoint is going to go up," said Hansen who noted that filing and audit fees required of public companies E.mergent's size can range from $200,000 to $350,0000 annually.

Higher costs, the lack of access to capital markets and no coverage from from institutional investors or analysts compound the difficulty in making a real return to shareholders. These factors are leading more small public companies toward mergers or going-private transactions.

Anderson points out that the financing window for small and mid-sized companies basically has been shut for about two years -- since the technology bubble burst and the major market indexes headed south during the last half of 2000.

Since then, the number of IPOs has plummeted both nationally and in Minnesota. In 2000, eight Minnesota-based companies went public -- all of them in the first eight months of the year.

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