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A lonely number for IPOs in Indiana: Calumet joins short list of Indiana companies to go public this decade

January 29, 2007

A little-known refining and petroleum products company on the city's west side has the distinction of being the only company in the state to go public in 2006.

Calumet Specialty Products Partners LP filed its initial public offering last January. It completed the process in June by selling 5.7 million shares of stock at $21.50 each, ultimately raising $122.5 million.

Shares since have nearly doubled in value, thanks in part to rising prices in the petroleum industry.

While Calumet's decision to hand investors part ownership seems to be a wise one, many Indiana companies that once might have ventured into the public arena are choosing to remain private. In fact, only 13 Indiana companies, or roughly two a year, have gone public since 2000.

A tepid economy during the early part of the decade is partly to blame. But industry experts more recently are pointing to costly government regulations arising from the Sarbanes-Oxley Act, which is helping to stoke the flames of a hot merger-and-acquisition market.

"That increased burden [from Sarbanes] is going to make companies think twice about being public," said David Millard, chairman of the business department at locally based law firm Barnes & Thornburg LLP. "If they're able to get a premium sale price in the marketplace, then the decision is to sell."

The two most glaring examples of that philosophy here are the acquisitions of Indianapolis-based Hat World Inc. and Suros Surgical Systems Inc.

Nashville, Tenn.-based retailer Genesco Inc. purchased Hat World in 2004 for $177.4 million. And last year, Bedford, Mass.-based Hologic Inc. bought Suros for $240 million. Suros makes a machine for minimally invasive vacuum-assisted breast biopsies and was central Indiana's fourth-fastest-growing private company in 2006, according to IBJ's annual ranking.

"Suros was a good IPO candidate, there's no question about it," said Robert Shortle, managing director of Periculum Capital Co. Inc. "But it's such a daunting process to do it, and selling is so easy, relatively speaking."

Yet, bolstered by fourth-quarter activity, IPOs nationally turned in a respectable showing in 2006.

The year's 250 IPOs were worth $49.8 billion, up 26 percent from 2005 in terms of value, and 21 percent in sheer numbers, according to New York-based data tracker Dealogic.

While 26 percent certainly is impressive-it beat the 18-percent return in 2005-the amount pales in comparison to the absurd 276-percent return enjoyed in 1999 before the tech bubble burst.

The fourth quarter's 94 registered deals in 2006 raised $19.6 billion, the most IPOs since the third quarter of 2000 when 136 deals came to market, according to Dealogic.

The finance sector had the most IPOs last year with 55, followed by technology with 35.

A total of 56 venture-backed IPOs raised $3.7 billion in 2006, the most activity and largest total raised from venture capitalists since 2004.

Optimists hope the improving IPO climate will encourage more startups to enter the public fray. They could receive a boost this spring from regulators who are likely to ease Sarbanes-Oxley rules and remove some audit requirements that are especially costly for small companies.

The burdensome regulations helped boost M&A deals to $3.7 trillion worldwide last year, surpassing the previous high in 2000 of $3.4 trillion, according to Thomson Financial.

Despite the uncertainty surrounding Sarbanes-Oxley, M&A activity should remain strong, said Mike Miles, managing director of locally based The Riderwood Group Inc.

"Mid-tier companies that looked at going public are influenced by the extraordinary amount of private-equity capital looking for deals," he said.

Incomplete filing

The only other company in Indiana besides Calumet to file an IPO last year was Taliera Corp., which has yet to complete the public offering process it started in July.

Entrepreneur J. Smoke Wallin, best known as CEO of software maker eSkye Solutions, wants to raise $60 million for the new Indianapolis company that doesn't yet own anything.

Wallin's Taliera Corp. is what's known as a "blank check" company that raises money with the intention of purchasing an operating business.

In this case, Wallin has his sights on the alcoholic-beverage industry, though the company said an acquisition could be in any field.

Since 2003, 66 blank-check companies in the United States have completed IPOs and 27 of them have announced or completed acquisitions. The 39 yet to strike a deal collectively are sitting on more than $2.8 billion.

Two secondary offerings

Secondary public offerings in Indiana were scant as well in 2006.

Windrose Medical Properties, a selfmanaged real estate investment trust that acquires, develops and manages medical properties, and Calumet filed the only two.

In April, Windrose issued a secondary offering of $34 million by selling 2.3 million shares at $14.80 each. Windrose, formerly based in Indianapolis, was later acquired by Toledo, Ohiobased Health Care REIT Inc. for $924.5 million.

Health Care REIT owns 464 health care and senior housing facilities in 37 states. Windrose owned 92 medicalrelated properties in 13 states, none of them in Indiana.

Calumet followed its IPO with a June secondary offering in which the company raised $108.7 million by selling 3.3 million shares at $32.94 each.
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