Proto Labs and other wannabe public companies are ready for a warming of the IPO market
Proto Labs is a fast-track Minnesota manufacturing company trying to make its way through a sticky public-offering pipeline.
The company hopes to raise up to $100 million through an initial public stock offering to finance its growth and provide private investors the eventual opportunity to sell some of their stock. The company, known for next-generation technology, is profitable and is approaching $100 million in revenue this year.
That's enough to land it at about 70th place on the annual Star Tribune 100 ranking of Minnesota's largest public companies. If the market cooperates, the Proto Lab IPO could happen in the fourth quarter.
The company, based in Maple Plain about 25 miles west of downtown, is an Internet-based, quick-turn manufacturer of custom parts for plastic mold prototypes and short production runs for product developers and specialty manufacturers around the globe. Its proprietary technology eliminates much of the time-consuming labor traditionally involved in quoting and manufacturing.
"Proto Labs is a great example of technology, innovation and focus on time-reduction within the manufacturing process," said Bob Kill, CEO of Enterprise Minnesota and a consultant to scores of local manufacturing firms who also advocates for the industry.
"Proto is inside a lot of supply chains,'' Kill said. "You could not find a cooler story among Minnesota manufacturers."
The problem is the IPO market cooled considerably in the third quarter. Short-term traders focused less on pretty good corporate earnings and more on macroeconomic threats to the economy. The number of public offerings in the United States fell from 46 in the second quarter -- the most in four years -- to 23 in the third quarter.
Investment bankers last week, including Minneapolis-based Piper Jaffray, blamed disappointing third-quarter results partly on lower fees from underwriting companies. Chad Abraham, co-head of investment banking Piper Jaffray said there is an inverse relationship between stock market volatility and IPO offerings.
The fourth quarter has started on a positive track -- through Friday, the Standard & Poor's 500 is up 8.5 percent.
Rick Hartfiel, head of investment banking at Craig-Hallum Capital, recalled periods, even during the go-go 1990s, when the "window" for IPOs closed temporarily.
"We don't need a roaring market, just stability," Hartfiel said. "If stock portfolios are on fire, investors don't want to own new stocks."
That's what happened in the third quarter when stocks fell about 15 percent. As a result, there are dozens of U.S. companies in the IPO pipeline.
Keefe, Bruyette & Woods, a Wall Street firm that researches financial services firms, said last week that it is "cautiously optimistic" about more deal making in the fourth quarter. But it will take stable prices.
"IPOs are driven by the potential for 'overvaluation' and right now the market tends to be undervaluing companies," said Dave Vang, professor of finance at the University of St. Thomas business school. "If you're going to sell part of your company, you want to get as much money as possible for as few shares as possible. It's a great market for buyers, but not as good for sellers."
In February, Kips Bay Medical raised $16.5 million, so far the only Minnesota IPO of 2011.
Proto Labs is already a substantial company, with about 430 employees. It more than doubled its net income to $9.25 million in the first half of 2011 on revenues that increased 60 percent to $46.4 million, according to its prospectus on file with the Securities and Exchange Commission. (Citing the pending IPO, the company declined to comment.)
The company was founded in 1999 by veteran technology innovator Larry Lukis. CEO Brad Cleveland, a veteran engineering and marketing executive, joined the development-stage company in 2001.
Proto Labs could be the biggest Minnesota IPO since the Great Recession -- one more reason to hope global markets regain some stability.
Neal St. Anthony • 612-673-7144 firstname.lastname@example.org