IPO action is a signal of better times on horizon

After a two-year drought, the folks who watch the pipeline for companies seeking to raise funds through public offerings of stock say 2010 could be a good year.

The tipoff was a resurgent fourth quarter in which 53 companies filed registration statements to go public with the Securities and Exchange Commission. And 30 companies actually sold shares and went public as the economy improved and stock markets rallied.

Among those fourth-quarter deals was Golden Valley-based AGA Medical, which raised nearly $200 million for its promising plug device that offers a less costly and less invasive alternative for plugging holes in the heart.

The 53 deals in the pipeline represent a 60 percent increase over the third quarter.

Ernst & Young, which tracks the numbers, said the equity markets are opening after horrible years in 2008 and the first three quarters of 2009, amid the recession that also froze credit markets to growth companies. The public offerings averaged about $190 million in the fourth quarter across several industries.

"I think 2010 could be a pretty good year for IPOs," said Bill Miller, an Ernst & Young partner in Minneapolis. "A good IPO year for Minnesota would be five to 10 deals, if you go back over 10 or 15 years. The word around town among the venture capitalists and investment banks is that 2010 could be a strong year."

In short, this also bodes well for some level of sustained economic recovery. Lenders and investors have decided that it's time to part with some money so that promising growth companies can invest in their operations or acquire competitors.

Loading up on capital

A number of the companies may not need the capital immediately but want to raise some money while the cash window is open through a "shelf registration," which allows them to get advance approval for an offering and gives them some discretion as to timing. The legal paperwork is completed and the registration sits "on the shelf" until market conditions are right to go ahead and raise the money.

"Companies are quickly realizing that the more flexibility they have, the better," said Brad Baker, CEO of Craig-Hallum, which provides research to institutional investors and investment banking services. "Private companies clearly are also not hesitating when it comes to filing registration statements. Private and public companies don't want to be delayed by the regulatory process when the timing is right for them to raise money."

Craig-Hallum assisted five companies, including Eden Prairie-based Compellent Technologies, in raising publicly funded equity in the fourth quarter.

"Our guys are working on follow-on offerings, but none I can talk about," Baker said.

Minneapolis-based SPS bills itself as a leading provider of on-demand supply chain management solutions that use its SPSCommerce.net software suite to help supplier customers to shorten supply-cycle times, maintain inventory levels, cut related costs and keep retailers happier.

The company, which declined comment Monday beyond its SEC filing, says it has more than 11,000 customers who pay monthly fees and 24,000 other customers.

SPS Commerce posted revenue of $27.8 million during the first nine months of 2009, compared with $30.7 million during all of 2008.

The company said it has had 35 consecutive quarters of increased revenue and that no one customer represents more than 1 percent of sales.

The supply chain management industry is the increasingly important electronic intermediary between retailers and tens of thousands of suppliers who provide goods to retailers.