Star Tribune 100: Signs point to a new round of companies going public

It was a long time coming in January when confetti swirled around the leaders of Entellus Medical Inc. and they rang the closing bell at the Nasdaq. The firm's initial public offering was the first by a company in Minnesota in 2015, and the largest for a medical device firm here since 2009. ¶ Entellus, which makes devices that inflate little balloons to open sinus passages permanently, did better than expected when it started selling its stock on the market. The company raised $78 million, and shares have risen 24 percent since. ¶ "You never know, so when we saw the enthusiasm among investors on that first day, and in subsequent days, we felt great about that," said Bob White, the CEO of Entellus. ¶ The successful launch of a new public company, especially one in medical technology, sends a hopeful signal across a state that has been shedding public companies in recent years. ¶ The biggest difference between the Star Trib­une 100 now and a decade ago is that the biggest companies are much bigger, and there are fewer small companies with between $50 million and $200 million in annual

revenue rising through the ranks.

In 2005, that group included 36 companies such as Buffalo Wild Wings, Famous Dave's and Stratasys. Now there are 18 companies in that revenue bracket, and many more that are smaller.

Overall, the list of public firms has shrunk to 90.

Fewer companies are going public and offering their stock on the open market. In 2004 and 2005, 10 companies in Minnesota made an initial public offering. In 2014 and 2015, three companies have gone public.

Public offerings are important because they bring cash into companies and give return to original investors, which in turn makes people more willing to invest in pre-IPO companies and fund new products.

The low number of IPOs in recent years has been partly a function of the recession and the slow economic recovery. But going public also has become more difficult and costly, particularly in the medical device industry, as entrepreneurs battled with regulators and investors shied away from the industry, which is so crucial in Minnesota.

The phenomenon is national and extends beyond the medical device industry. A torrent of public offerings in the 1990s slowed to a trickle in the 2000s thanks to tighter regulation and changes in the way people buy stocks.

That may be starting to change. Analysts have noted a national uptick in medical device IPOs, with U.S. firms raising nearly $1 billion in 2013 and 2014, according to Ernst & Young. The amount of money raised rivaled "banner" years like 2001 and 2005.

Accounting firm BDO International, which has an office in Minneapolis, surveyed investment banks and venture capital firms on 2015 prospects for IPOs. By far, the most promising sector, they said, was medical technology companies, with 73 percent surveyed saying they saw a positive IPO outlook for the sector.

Some analysts believe the medical device industry in Minnesota could help lead a resurgence in IPOs that would help stem the almost decadelong decline in the ranks of Minnesota-based public companies.

If more medical device companies go public, more will attract local investors who will make money and look for other companies to back.

While the dearth of IPOs in the medical device industry and in general coincided with a slow period for venture capital deals, now VC dollars are starting to flow.

An improved economy and the JOBS Act, which is supposed to exempt some firms from certain costly requirements of being public, each get credit for the shift.

It's not "all the sudden unicorns everywhere," said Jaskulke, but "it should be easier for device companies to go public."

White, the CEO of Entellus, is a Medtronic veteran and CEO of a company that was sold to Medtronic. He follows the market for young medical device firms and believes the down cycle for public offerings is coming to an end.

"Last year and this year, you're going to see the higher-quality companies go public," White said.

"It allowed companies like Entellus to become fairly mature," he said. "Five or 10 years ago, a lot of the companies going public were much earlier stage, had a lot more unpredictability."

The Entellus IPO was the largest public offering by a Minnesota medical device firm since AGA Medical Corp. in October 2009. That company was acquired a year later by St. Jude.

The Plymouth-based firm announced Thursday that its first-quarter revenue was $13.5 million, 33 percent higher than the same period a year ago.

The firm is now plowing its cash into developing new products, building its sales force and expanding internationally.

Adam Belz • 612-673-4405 Patrick Kennedy • 612-673-7926