Economy and Life Science & Biotech and Technology and Real Estate & Retail

Indiana IPOs break out of recent slump: Kite Realty, Republic Airways, Adesa among 5 state firms to test public waters

January 24, 2005

Hoosier-based companies registered five initial public offerings last year, a robust number considering not a single Indiana business went public in 2003.

The uptick could signal the state's economy, as well as the nation's, is on the mend. Nationally, 233 companies raised $43 billion collectively to go public on the major U.S. stock exchanges in 2004, a 195-percent increase in the number of IPOs over 2003.

And the performance could be even stronger this year, said Richard Peterson, a market strategist for Thomson Financial, a New York company that tracks IPO filings.

"I suspect the activity will increase," Peterson said. "There are well over 100 IPOs in the pipeline at this point. It should be a healthy market."

Peterson predicted 300 IPOs could be consummated this year. While the number would improve upon last year's showing, it's still a far cry from the stock market's heyday during the latter part of last decade when 546 companies went public in 1999.

But considering what's transpired the better part of this decade, the outlook for this year is healthy. IPO activity plummeted from 1999 to 2003, when registrations sank to 86 nationally.

Market watchers said the bursting of the Internet bubble and the corporate scandals that brought stricter regulations to the public-company sector scared a lot of investors away. But 2004, buoyed by a solid showing from the biotech community and a healthier stock market, gives investors reason to believe plenty more deals will follow.

"In a crappy market, people aren't looking to buy," said John Reed, president of the financial institutions group at David A. Noyes & Co., a Chicago-based investment brokerage. "As stock valuations are rising for existing public companies, there's going to be a corresponding rise in the value in which a new offering would price."

Indiana-based companies that went public in 2004 were:

Kite Realty Group Trust, Indianapolis

Republic Airways Holdings Inc., Indianapolis

Indiana Business Bank, Indianapolis

Adesa Inc., Carmel

Symmetry Medical Inc., Warsaw

On Jan. 14, Adesa was leading the pack and trading at $20.66. Symmetry followed at $18.25, Kite at $14.98, Republic at $11.76, and Indiana Business Bank at $11.50.

Kite, a real estate investment trust, or REIT, that raised $211.9 million, debuted at $13 a share. It had hoped to raise $228.2 million to $260.8 million in its August offering. The lower amount may have been a function of several real estate companies looking to access the public market at once, an analyst told IBJ last year.

Republic, a holding company for regional Chautauqua and Republic airlines, raised $65 million and also started at $13 a share. The stock price has remained flat since its offering in May. But the company is outperforming the larger ATA Airlines, a locally based national carrier that is attempting to emerge from bankruptcy.

Indiana Business Bank raised $14.8 million to open at $10 a share in late September. The financial institution, however, was exempt from registering the offering with the Securities and Exchange Commission because it is a bank.

Adesa, the second-largest used-car auction company in North America, raised $150 million and opened in June at $24 a share. The stock price since has dipped to the $20 range. Employing 11,000 people and operating 53 used-vehicle auctions nationwide, Adesa was acquired by Minnesota-based Allete in 1996 before being spun off last year.

Symmetry, a designer and manufacturer of surgical instruments, raised $120 million for its December offering and began trading at $15 a share. Its stock price has increased the most of the four Indiana companies that went public last year.

David Millard, chairman of Barnes & Thornburg LLP's Entrepreneurial Services Practice Group, said the state has positioned itself well with the Kite and Symmetry offerings because the REIT and biotech sectors are viewed as hot industries.

"They match the national trends fairly well," he said. "It means we're not getting left behind in that activity."

The top three IPO industry sectors for 2004 in terms of IPO pricings were biopharmaceuticals and biotherapeutics, medical devices and mortgage and investment REITs, according to Austin, Texas-based Hoover's Inc., a provider of business information.

Symmetry's public status as a biotech company especially bodes well for the future of the state, Millard said. As Peterson at Thomson Financial expects more biotech firms to enter the public-company arena, Millard thinks Indiana is positioning itself well to take advantage of the biotech trend. That's due in large part to the fact that Indianapolis' leaders have staked the city's future on its life sciences initiative.

Construction of life-sciences-related buildings has begun downtown, particularly at the head of the Central Canal. More construction is earmarked for the Stadium Drive district.

"If we're successful in creating those companies, then we ought to see a huge increase in those [IPO] numbers in Indiana," Millard said. "Arguably, we're much better positioned than we were in '99, not only because of the life sciences and biotech initiatives, but the fact that we have much better synergies in that sector of the economy than we did in information technology."

Locally based companies such as Eli Lilly and Co., Guidant Corp. [in the process of being sold to Johnson & Johnson] and Clarian Health Partners are among the leaders backing the push to establish the city as a life sciences hub.

Whether an IPO is still in the works for Carmel-based Oak Street Financial Services Inc. remains uncertain. The mortgage company had planned to go public in 2004, but the offering has been delayed, according to a spokesman for the company.

Joe Poulos of Edelman Public Relations Worldwide in Chicago, speaking for Oak Street, said the company's IPO filing is still alive and that it intends to complete the offering.

He said a completion date has not been set and declined to divulge what has led to the delay.

Oak Street had wanted to raise $150 million from investors. But since 90 percent of its sales historically have come from mortgage refinancing, rising interest rates may have quelled interest.

"Higher mortgage rates slow down business," said George S. Farra, co-founder of locally based Woodley Farra Manion Portfolio Management Inc. "My guess is that the market probably wasn't all that interested. If there's a lack of demand, you have to cut the price, and then it's not worth it."

Indiana's activity in the IPO market has traditionally been tepid. While the national numbers surged in 1999, the state contributed only three offerings to the mix.

It followed that with weaker performances the next three years-two each in 2000 and 2001, and one in 2002. The lone contributor then was locally based Windrose Medical Properties Trust, a REIT specializing in medical buildings. Windrose presented a secondary offering last year that raised $19.2 million.

Windrose was among four companies registering additional equity offerings, up from two in 2003.
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