Public offerings rise in ’07: Three Indiana companies hit turbulence after IPOs

The market for initial public offerings in Indiana was on the upswing last year, as the number of companies to go public tripled, from one in 2006 to three in 2007.

Locally based HHGregg Inc., Kokomobased Haynes International Inc. and LaPorte-based LaPorte Bancorp. Inc. became publicly traded.

The fact that three more companies in Indiana became public doesn’t represent a trend. But four others that have filed IPO registration statements with the Securities and Exchange Commission bolster the belief that a turnaround is conceivable. If all four come to fruition this year, that would be the most Indiana-based companies to go public since five did in 2004.

Likewise, the national IPO market in 2007 was the strongest in seven years, despite credit woes and stock market volatility. A total of 234 deals raised $54 billion nationally, compared with 198 totaling $43 billion in 2006, according to Renaissance Capital in Greenwich, Conn.

“Without question, I think that’s a good year,” said David Millard, chairman of the business department at locally based law firm Barnes & Thornburg LLP. “And clearly, 2008 will be stronger.”

Yet, analysts are unsure the momentum will continue this year. Concerns about the health of the financial sector, consumer spending and soaring fuel prices likely will curb investor appetite, they predict.

At any rate, the triad of Indiana companies that went public last year has stumbled out of the gate.

HHGregg, which has 79 stores in eight states, began trading in July after selling 9.4 million shares at $13 each, raising $133.2 million. The shares reached $16 in late October, but it’s been downhill since. The stock sank below $9 a share in mid-January, a 40-percent decline from the offer price.

The timing of HHGregg’s IPO was difficult, Steve Dolvin, an assistant professor of finance at Butler University, speculated.

“We’ve had the whole subprime issue and talks of a recession,” he said. “They’re in the consumer discretionary [spending] sector-if you look at Best Buy or Circuit City or any retailer-it’s been very bad across the board.”

Haynes International, a Kokomobased manufacturer of high-performance alloys for the aerospace, chemical and gas turbine industries, completed its IPO in March. It sold 2.1 million shares of stock at $65 each, raising $136.5 million.

By July, shares had soared to $97, but the stock was unable to maintain the momentum. The price slid to $47 earlier this month, a drop of nearly 28 percent from the offer price.

LaPorte Bancorp, the holding company for LaPorte Savings Bank, became public in October by selling 1.3 million shares at $10 each, raising $13 million. The stock declined to the $6 to $7 range in mid-January.

Hot prospects

The four companies in Indiana poised to go public this year are locally based Aprimo Inc. and ExactTarget Inc., Fort Waynebased Freedom Financial Holdings Inc., and Merrillville-based NiSource Energy Partners Inc. NiSource Energy is a partnership formed by utility NiSource Inc., a public entity as well, to own and operate natural gas transportation pipelines and related infrastructure.

The IPOs from software firms Aprimo and ExactTarget in particular are gratifying, Millard said, because they are backed by venture capitalists. VC investments in the technology sector have been relatively flat for much of the decade.

Technology firms accounted for about 26 percent of the companies that went public in 2007, the most since 2000. Moreover, several tech companies had blockbuster debuts, including Californiabased Vmware Inc., which raised more than $1 billion to become the largest tech IPO since online search engine Google Inc. in 2004.

Neither Aprimo nor ExactTarget is in that ballpark, but leaders of the two marketing-software companies have several reasons to think they’ll be successful. As IBJ reported last month, each has a major competitor in its niche that already has gone public and done well.

Aprimo wants to raise $50 million in its offering, according to plans submitted to the SEC in September. The company-which makes software that helps clients manage marketing expenditures, measure results of campaigns, and increase customer leads-was founded nine years ago. It reported 2006 profit of $2.1 million on revenue of $51.6 million. Annual revenue has quadrupled since 2002.

Meanwhile, the 7-year-old ExactTarget intends to raise $86 million, according to its registration statements filed in December. The e-mail marketing firm whose software helps clients create, target and deliver permission-based e-mails earned $2.1 million on revenue of $34.1 million in the first nine months of 2007. It was the firm’s 27th consecutive quarter of revenue increases.

Using recent performance as a barometer, both should excel within the public realm, Millard said.

“Aprimo and ExactTarget have been around for a while and have re-emerged as IPO stars in Indiana,” he said. “ExactTarget has been one of our leading technology companies out there, and Aprimo is the same way.”

Nationally, 31 venture-backed IPOs raising $3 billion were completed in the fourth quarter of 2007, according to a report by Connecticut-based Thomson Financial and the National Venture Capital Association in Arlington, Va. That’s the highest quarterly number since the third quarter of 2000.

The numbers are encouraging to Mark Heesen, president of the NVCA.

“As much as they hate the regulatory morass of Sarbanes-Oxley,” he said, “entrepreneurs are starting to understand that going public is a net positive.”

Indeed, costly government regulations arising from the federal Sarbanes-Oxley Act have prompted many executives to forgo public ownership in favor of the hot merger-and-acquisition market.

Going public can be difficult, as J. Smoke Wallin, CEO of locally based Taliera Corp., can attest.

In 2006, Taliera revealed ambitious plans to uncork the potential value in neglected alcoholic beverage brands with a “blank check” initial public offering. Taliera’s intention was to raise $60 million, but it withdrew its IPO registration statement in March of last year, citing “adverse market conditions.”

Secondary offerings

Just two secondary public offerings were filed in Indiana in 2007, both by the same company. Evansville-based Accuride Corp., the largest supplier of wheels for heavy- and medium-duty commercial trucks and trailers, filed one in May and another in June.