Schafer: For small firms, a stock listing isn't always the right choice

If going public is cause for celebration, then why not the filing of a Form 15, the regulatory document that takes a company back out of the public market?

It certainly was a good day for Winland Electronics, No. 98 on the Star Trib­une 100 list of the state's biggest public companies.

Mankato-based Winland reported revenue last year of a little more than $3.6 million, about what it did the year before. To be an actively followed public company with a liquid stock, Winland ought to have been generating that much revenue every business day of the year.

"As you know, a $3 million business can be very profitable," said Tom Goodmanson, who chaired Winland's board through the process that led to de-registration, making the point that Winland wasn't a bad business. Just a bad public company.

Winland is far from alone in that cate­gory. At a time of rising costs of being public and falling incentives for brokers to care about small-company stocks, there are a lot of cases in which it doesn't make sense to stay public. Winland, however, never really had the profile of a successful publicly held corporation.

Winland Electronics got its start in the early 1970s and began doing contract ­manufacturing, in addition to building its own products, in the 1980s. It had been public for a while before its stock started to trade on Nasdaq in 1995, when annual revenue was approaching $6 million.

For a brief period in the middle of the last decade Winland's stock enjoyed a small following, with investors buying Winland as a cheap way to get on board for the ride of the bed manufacturer Select Comfort Corp.

The high-water mark for Winland came in 2006 at just over $7 per share, valuing the business at about $25 million. The stock fell 21 percent in value the next day and never again got close to its old high.

Goodmanson, whose day job is CEO of Minneapolis-based Calabrio, a producer of software for customer call centers, joined the board in 2007.

In the story that Goodman­son told, "going dark" by deregistering the stock wasn't the result of one decision. It was more like the end of a process that began several years ago when the board concluded that somebody else needed to own Winland's contract manufacturing operation.

The business wasn't growing ­— Select Comfort had moved on to other suppliers — and Winland was a small player in a global market that increasingly favored the biggest ones. The big players get more benefit from their capital equipment and vendor relationships and can offer more complete services, like broad capabilities in engineering. They also usually have a diverse customer base to ride out the ups and downs of any one customer's product cycles.

Winland in 2008 had consolidated revenue of about $28.7 million, with $25.3 million coming from contract manufacturing. By 2010 the manufacturing services unit was down to $14.7 million in revenue.

After Nortech took over the contract manufacturing operation, Winland still was selling a line of Winland-branded security products. These are the kind of devices you can spot hanging on the wall of a convenience store, displaying temperature and other data and sounding an alarm when the staff needs to know something urgent, like if the freezer door were propped open.

As the directors considered options, Goodmanson said, they confirmed that the Winland brand in this niche was well regarded. They believed the market for hardware and software to connect sensors and other devices to provide information to building managers was just getting rolling.

But Winland employed just four people full-time at the end of last year. Its world headquarters fit into a 1,924-square-foot space leased month-to-month in its old building.

The costs of being public, paying for public accountants and lawyers, officers' and directors' liability insurance, filing fees, and the rest were clearly burdensome for a company that small, even though Goodmanson said the legal and accounting advisers had reduced their fees as much as they could and cost wasn't the only consideration.

Asked if the board had sought a buyer for the remaining assets with the idea of just winding up the company, Goodmanson responded that he couldn't share details of board deliberations. But, he said, "we looked at strategic options each and every time we got together."

As for the smaller holders, owning a tiny sliver of a small, privately held business is no one's idea of a great wealth-accumulation plan. On the other hand, they got next to no benefit from Winland reporting through the Securities and Exchange Commission and the costs of it made their small business unprofitable. Plus, the stock could still be bought and sold in the OTC Pink trading market.

Winland filed the right form with the SEC in early March, easing itself out of its painful existence as a reporting, publicly held company. Good­manson stepped down from the board shortly thereafter.

"I'm really happy to be a shareholder, to be honest," he said. "I don't anticipate it being a billion-dollar company, but it will be a growing, profitable one that will [generate] returns for shareholders."