business

The numbers are in and, yes, they're really that bad.

Dealmakers staggered into 2009 bloodied and bruised as the deepening recession and frozen credit markets all but paralyzed investors. Investment banks with strong connections to Minnesota failed to underwrite a single initial public offering in the fourth quarter and completed less than a dozen additional equity and private placement deals, according to the Star Tribune Quarterly Deals Report.

The lone bright spot: The number of mergers and acquisitions -- 51 -- remained relatively flat compared with the previous two quarters. But given the tumultuous markets, bankers struggled to complete even those transactions.

"The fourth quarter got more difficult to get across the finish line," said Glenn Gurtcheff, managing director of the Harris Williams & Co. office in Minneapolis. "What was agreed to, what wasn't agreed to, was open to additional [negotiation]. Duct tape, shoe spit. ... We did everything we could" to keep deals from falling apart.

Piper Jaffray & Co., the largest Minnesota-based investment bank, managed only two mergers and acquisitions, two private placements, and some municipal debt underwriting.

Across the country, the numbers were grim. Only one company, Grand Canyon Education Inc. (LOPE), a Phoenix-based online education company, went public in the fourth quarter, compared with 98 in the same period of 2007, according to Dealogic. IPO volume last year fell 44 percent, to $31.1 billion (46 deals), from $55.9 billion (254 deals) in 2007. In 2008, 121 companies withdrew or delayed their IPOs compared with 68 in 2007, the highest annual number since 2001.

There were no IPOs of Minnesota-based companies in 2008. Five local companies -- IDS Group Inc., Milestone AV Technologies Inc., Vision-Ease Lens Corp., Cardiovascular Systems Inc., and Transoma Medical Inc. -- pulled their planned IPOs. In November, Cardiovascular Systems said it would go public by merging with a shell company already trading on the Nasdaq exchange. AGA Medical Corp. has filed a registration statement but has yet to complete an IPO.

For only the fourth time since 2000, Minnesota-related investment banks failed to underwrite a single IPO in a quarter. Dealmakers assisted on only 15 IPOs last year, the same number they underwrote in just the first quarter of 2007.

Maybe by second half?

Peter de Vos, head of investment banking at RBC Capital Markets, said he expects to see IPO activity resume in the second half of this year. But given the volatile markets, "it will probably be later than sooner," he said.

"There is still a tremendous amount of uncertainty out there," De Vos said. "People are just having to readjust their expectations, what is price-appropriate in the market."

Minnesota-related banks continued to push through mergers and acquisitions. Lazard Middle Market advised UMI Co. on its sale of APG Cash Drawer to Private Capital Management and APG senior management. APG, based in Minneapolis, manufacturers cash drawers for retail point-of-sale systems.

Houlihan Lokey Howard & Zukin's Minneapolis office advised Dobbs Temporary Services Inc. on its sale to Prudential Capital Partners in Chicago. Also known as Pro Staff, the Minneapolis-based firm provides companies with temporary employees who specialize in accounting, finance, and information technology. Houlihan also managed the sales of Specialty Commodities Inc. to Goldner Hawn Johnson, a Minneapolis-based private equity firm. Specialty, Fargo, N.D., makes ingredients found in snacks, health products and pet food.

Credit markets thaw

RBC's De Vos said the credit markets are starting to thaw, if only a little. The type of deals that tend to lead an economic recovery are beginning to get through, he said, such as high-yield secondary stock offerings that pay out dividends. Large, stable public companies favor that method to raise new capital. For instance, RBC Capital was one of several banks that helped Wells Fargo & Co. raise $12.7 billion through a secondary offering to purchase Wachovia Corp last fall.

But De Vos believes business this year will come from distressed companies demanding restructuring services, such recapitalizations and protection from hostile takeovers.

RBC Capital helped publicly traded X-Rite Inc., Grand Rapids, Mich., a manufacturer of color-matching products, restructure its debt and raise $155 million from private equity investors. Mercanti Group, a Minneapolis-based boutique investment bank, helped 4Life Research of Sandy, Utah, recapitalize its balance sheet.

"There are lots of mergers and acquisitions that were postponed or canceled," De Vos said. "Some will come back once stability comes back to prices. We have a tremendous backlog of deals. But when the deals are going to happen is still pretty uncertain."

Thomas Lee • 612-673-7744