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IPOs take minor dip in 2005: Analysts stay optimistic; 3 Indiana companies set to go public in early '06

January 30, 2006

Three Indiana companies took the plunge to go public last year, two less than the number that did so in 2004.

The state's slight dip in initial public offerings mirrors the slump in activity nationally. But Indiana appears to be off to a fast start for 2006. Three other Hoosier companies filed to go public late last year, but had yet to complete their IPOs by year's end.

Overall, the number of companies that went public on the major U.S. stock exchanges declined to 196 last year from 233 in 2004, a 16-percent dip. The amount of money raised also fell, to $34.1 billion from $43 billion.

Market watchers blame a flat stock market for the drop in IPO registrations. But despite the slide, last year's performance was not as poor as it might seem, said Richard Peterson, a senior researcher for Thomson Financial, a New York company that tracks new filings.

"By no means was 2005 a bad year for IPOs," Peterson said. "One year down, after the best year since the tech bubble, is not indicative of a negative for the market."

Indeed, the environment for IPOs last year was much healthier than that following the collapse of the Internet sector in the early part of the decade. In 2002, only 70 companies went public nationally. And in 2003, just 77 opted for the designation. The climate in Indiana was equally disappointing. The same two-year span produced just one IPO here.

Those dark days are a distant memory, but room for improvement remains, said David Millard, chairman of Barnes & Thornburg LLP's Entrepreneurial Services Group.

"We're certainly not losing any ground," Millard said. "But last year certainly wasn't anything to write home about. We continued to plod along and lag much of the nation."

Indiana's IPOs

The three Indiana companies braving the IPO waters last year raised a combined $464.5 million in investments. They are:

Accuride Corp., Evansville

American Commercial Lines Inc., Jeffersonville

White River Capital Inc., Indianapolis

Accuride, a manufacturer of commercial vehicle components, was the first Indiana company last year to announce its intention to go public. Following its January prospectus, Accuride launched a $99 million offering in April in which 11 million shares were initially priced at $9 each. Accuride stock now fetches about $12.80 on the New York Stock Exchange.

David Armstrong, Accuride's senior vice president and general counsel, said the decision to go public was the next logical step to growing the company. Accuride, which dates back to the early 1900s, purchased Chicago-based Transportation Technologies Industries Inc. in January 2005, expanding its footprint from five to 17 plants.

"With that acquisition, we became one of the leading stand-alone manufacturers of commercial-vehicle components," Armstrong said. "It was a natural to access the capital markets and continue on our growth strategy, and take the company public."

Accuride employs 4,700 people and had revenue last year of $1.3 billion.

American Commercial Lines, a marine transportation company, has annual revenue of $600 million and employs 2,600 people. It sold roughly 9.5 million shares at $21 each, raising $199.5 million. The company has enjoyed a solid showing so far on the NASDAQ, with shares topping $30 apiece.

White River Capital trades on an overthe-counter bulletin board, but executives have said it wants to make the jump to the NASDAQ SmallCap Market. It raised $35 million.

Three in waiting

Locally based Aearo Technologies Inc. and Calumet Specialty Products Partners LP, and LaGrange-based Legend Motors Worldwide Inc. have filed for public-company status but have not completed the process.

Calumet Specialty Products filed its papers in October and wants to raise $141.9 million by selling 6.45 million units at $22 each. Calumet, part of the private business empire of the Fehsenfeld family, owns three refineries in northwest Louisiana producing unleaded and diesel fuel as well as solvents and waxes. In 2004, it earned $38.3 million on $539.6 million in sales.

Aearo started the IPO process in November and wants to raise $230 million. Additional pricing information is not available yet. The company manufactures and supplies personal protective equipment and energy-absorbing products, including head- and hearing-protection devices and prescription and non-prescription eyewear.

Aearo has 1,659 employees and in fiscal 2005 earned $26.9 million on $423.4 million in revenue.

Legend Motors plans to raise $36 million.

More investment called for

The diverse nature of the companies going public is encouraging to Bruce Kidd, director of entrepreneurship at the Indiana Economic Development Corp., who said financial institutions have dominated the state's recent IPO market.

"If we are looking for silver linings, this could be it," Kidd said. "That's a good sign we have things moving in a new and interesting direction."

Yet, Indiana never has been a hotbed for IPOs, largely due to a lack of interest from large investment banks, Kidd said. BioCrossroads' $73 million Indiana Future Fund and the state's $75 million 21st Century Research and Technology Fund can provide funding to startups.

The IEDC wants to concentrate on development, emphasizing job creation in small, entrepreneurial, high-growth companies. IFF-backed investments from venture capitalists target life sciences prospects, although the activity has been slower than what those involved in the effort had envisioned, Millard said.

Eventually, the hope is that the concentration on life sciences will lead to more IPOs. Conversely, going public can subject corporations to more risks and costs.

To be sure, executives are under much more scrutiny since the corporate-scandaldriven Sarbanes-Oxley Act took effect. Market watchers blame the scandals that brought stricter regulations to the publiccompany sector for scaring many investors away.

But three of four Indiana companies that went public in 2004 performed well enough to seek additional money last year. Kite Realty Trust Group, Symmetry Medical Inc. and Republic Airways Holdings Inc. all filed secondary offerings.

Kite, a locally based real estate investment trust, raised $211.9 million in 2004 and issued a secondary offering of $127.6 million in September.

Symmetry, a Warsaw-based designer and manufacturer of surgical instruments, followed its $120 million IPO with a $222.5 million offering in July. And Republic, a locally based regional airline, issued three secondary offerings ($75 million, $97.7 million and $119.6 million) last year following its $65 million IPO.

One trend shaping up this year is private-equity firms taking their investments public. For instance, New York-based Bear Stearns & Co. acquired Aearo in April 2004 for $409 million. Bear financed the purchase from New York-based Vestar Capital Partners with $304 million in new debt and would use proceeds from the offering to pay down that debt.

George Farra, a principal at locally based Woodley Farra Manion Portfolio Management Inc., said private-equity firms have been active the last few years snapping up companies. Taking them public is a good way to capitalize on the investment.

"If you bring an old name back into the market, investors might have warm memories of making money on it," he said. "The reception might be better than that of a dot.com."
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