Stock Market and Entrepreneurship and Initial Public Offerings and Small Biz Funding and Banking & Finance and ExactTarget and Investing and Startup and Scale Computing and Venture Capital and Angie's List and Small Business

Ingredients in place for plethora of Hoosier IPOs

May 28, 2011

Don’t expect Indiana companies to be wallflowers at this IPO party.

Through the years, when the market for initial public offerings turned strong, few Hoosier companies capitalized, in part because there just weren’t that many firms here with sufficient star power.

Well, the market is thriving now. And this time around, Indiana’s entrepreneurial community has advanced to a point where there is “an abundance of companies that are legitimate IPO companies,” said David Millard, a partner at Barnes & Thornburg and chairman of its Corporate Department.

Many of the names are well-known—Angie’s List Inc., ExactTarget Inc. and Scale Computing, to name a few. But others in the shadows are on the same path.

“I see a lot of companies that are doing their three-year plans listing going public as one of the aspirational goals in the plan,” Millard said.

The window of opportunity for firms looking to go public swung open early last year and likely will remain open for the foreseeable future, market watchers say. So far this year, 131 U.S. companies have filed for IPOs, up 24 percent from the same point in 2010, according to Connecticut-based Renaissance Capital.

Both Indiana companies that took the plunge in the past year fared well. Shares of Fort Wayne-based handbag-maker Vera Bradley Inc. are trading at $49, up 200 percent from the October IPO price. West Lafayette-based Endocyte Inc., a developer of cancer treatments, is trading at about $12, double its February offering price.

Two fixtures of the state’s industrial economy, Indianapolis-based Allison Transmission and Pendleton-based Remy International Inc, are waiting in the wings after filing for IPOs in March.

Other firms are adding management and board firepower—moves likely to help them win over investors should they move ahead with IPOs.

In April, for instance, Indianapolis-based consumer ratings service Angie’s List said Silicon Valley startup veteran Keith Krach had become chairman and Robert Millard had become chief financial officer. Millard formerly was chief financial officer of local firms FinishMaster Inc. and Personnel Management Inc.

On the same day as those announcements, CEO Bill Oesterle said: “We are certainly reaching a size, and have opportunities in front of us that are causing us to consider very seriously a public offering. We could make that decision this year.”

In a statement, Krach called Angie’s List’s business model “unstoppable.”

The bravado may be warranted. Fast-growing Angie’s List is no me-too business. It’s a pioneer in providing web-based reviews on service providers. And unlike anonymous sites like Yelp, it runs reviews only from its members. Not only do members provide the rating content for the site, they pay an annual fee for the privilege to do so.

Companies wanting to go public need “a special sauce” along with strong management and plenty of growth potential, Millard said. Because the state has an abundance of companies that qualify, he expects to see an unprecedented number of Hoosier IPOs before the window of opportunity closes.

There are no guarantees, of course. Firms that eye IPOs also consider other exit options for their venture capital and private-equity backers—including the outright sale of the business.

Outright sales aren’t all bad. Ohio-based Teradata Corp.’s purchase of Indianapolis-based marketing software maker Aprimo Inc. for $525 million late last year minted two dozen millionaires, many of them locals who will plow some gains into other startups.

But having an abundance of Indiana-based public companies—and the highly paid professionals they employ—is important to the health of the state’s economy, Millard said.

And he noted that public companies tend to grow faster than their private brethren, in part because they can raise additional capital by selling stock and can use their stock as currency to make acquisitions.

“It just makes growing the company—organically, by joint venture or by acquisition—a much easier path,” Millard said.

HHGregg shares jump

Slumping same-store sales have walloped shares of HHGregg Inc., which have fallen by more than half over the past year.

But investors responding to HHGregg’s May 26 fiscal fourth-quarter earnings report found a silver lining: The company was able to eke out an impressive profit increase even as same-store sales tumbled more than 10 percent.

In the hours after HHGregg reported earnings of nearly $15 million, vs. $10 million in the same period a year earlier, the company’s shares rose to $14.61, up 13 percent on the day.

CEO Dennis May said executives were able to bolster profit because they “aggressively managed the business,” overcoming “industry headwinds and inclement weather around the Super Bowl.”•

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