Deal-making nearly ground to a halt in the second quarter, as investors continued to wait for the stock markets to bottom out.
Only one investment bank with strong Minnesota ties -- RBC Capital Markets, which did four -- assisted any initial public offerings (IPOs), according to the Star Tribune Quarterly Deals Report. Just 11 IPOs were completed during the first six months of the year by underwriters that have Minnesota ties, compared with 24 in the same period in 2007.
Mergers and acquisitions were hit hard by a persistent shortage of credit. Investment banks with Minnesota ties advised on 49 deals in the second quarter, down from the previous quarter and the lowest total since 2006.
"We are hitting new lows with deal activity," said Jon Salveson, head of investment banking at Minneapolis-based Piper Jaffray Companies. "It's like traffic control at LaGuardia [airport]. Nothing is taking off or landing, but you have a lot of companies that have needs."
Nationally, IPO volume in the second quarter fell 71 percent, to $5.2 billion, from the same period a year ago, according to Dealogic. For the first six months of 2008, 58 companies have withdrawn their IPOs, compared with 28 withdrawals in the first half of last year, Dealogic says.
In 2008, two Minnesota-based medical companies pulled planned IPOs: Vision-Ease Lens Corp. and Transoma Medical. Vision-Ease, a Ramsey manufacturer of ophthalmic lenses, had registered for an IPO in October 2006. The company was looking to raise about $86.3 million but hadn't filed an amendment to its registration since March 2007.
Transoma, an Arden Hills-based maker of wireless diagnostic medical devices, announced its IPO plans in October, hoping to raise $75 million.
No Minnesota company has completed an IPO since Enteromedics Inc. and Virtual Radiologic Inc. did theirs Nov. 14. A software company, IDS Group Inc. of Minneapolis, filed for an $86 million offering in February, but has not yet completed the deal.
Investors have been picky about deals, preferring companies that have lower risk that are "demonstrably performing," said Glenn Gurtcheff, managing director of the Minneapolis office of investment bank Harris Williams & Co.
"Deals are taking a little longer," Gurtcheff said. "They are a little harder to do. If you have high-quality stuff, you've got it made."
Last month, AGA Medical Corp., a Plymouth-based maker of medical devices that treat heart conditions, filed for an IPO, seeking to raise as much as $200 million.
Piper Jaffray has particularly struggled. The company, which focuses on the middle market, did not underwrite any IPOs in the quarter and advised just two mergers and acquisitions. Nationally, mid-market mergers and acquisitions volume -- deals between $100 million and $1 billion -- accounted for 14 percent of total deal volume in the second quarter, down 8 percentage points from the previous quarter and the lowest market share performance since 1998, according to Dealogic.
Piper Jaffray recently posted a quarterly loss of $3.63 million, compared with year-earlier profit of $9.32 million. Revenue fell 2 percent, to $100.7 million, with investment-banking revenue tumbling 54 percent.
While high oil costs, falling home prices and weak consumer sentiment contribute to a struggling economy, Salveson said the financial sector needs to rebound before a recovery can occur. Billions of dollars in write-downs have forced major firms such as Merrill Lynch, Citigroup, Wachovia and Lehman Brothers to raise additional capital.
Banks and other financial institutions around the world raised $108.5 billion through 81 deals in the second quarter, up from $32.9 billion via 49 deals in the previous quarter, according to Dealogic. Financial institutions already have raised more money in the first half of 2008 than all of last year.
Salveson said the worst probably is yet to come.
"We are searching for the bottom," he said. "We are in the ninth inning of a 22-inning game."
Staff researcher Patrick Kennedy contributed to this report. Thomas Lee • 612-673-7744