Uptick in Local IPOs in 2007; $824M Raised

Orange County Business Journal, Jan 7, 2008 by Beighley, Dan

Six Orange County companies went public last year raising $824 million for themselves and investors, according to this week's Business Journal list.

The offerings raised triple the amount of the four companies that went public in 2006. Our list includes offerings from 2007 and 2006.

Nationally, there were 234 IPOs in 2007, up 18% from a year earlier, according to Greenwich, Conn.-based Renaissance Capital LLC, which tracks public offerings.

The national offerings raised $54 billion, up from $43 billion in 2006, according to Renaissance Capital.

Locally, more than half of the new stocks ended the year lower than their debuts.

Healthcare dominated as four out of the six companies that went public last year.

The biggest local offering was from Foothill Ranch-based nursing home operator Skilled Healthcare Group Inc., which raised $297 million with its May debut. Skilled itself raised $117 million in the offering while investors selling shares made up the rest.

Skilled's offering raised more than all four of 2006's IPOs, which totaled $266 million.

The company saw its shares end the year down 8% with a market value of $280 million.

Top Performer

The best performing IPO came from Irvinebased medical device maker Masimo Corp., which rose 89% from its August debut to a market value of more than $2 billion.

Masimo raised $233 million in the offering, including $48 million for the company.

The company, which saw its shares rise 23% in the first day of trading, filed twice before to go public but backed out amid doubts about the market, said Dennis McCarthy, managing director of Newport Beach-based investment bank B. Riley & Co.

Another nursing home operator, Mission Viejo-based Ensign Group Inc., raised $64 million in its November Nasdaq open, including $56 million for the company. Ensign originally set out to raise $92 million but saw the price of its offering cut before its debut.

Ensign ended the year down 11% with a market value of $285 million.

In March, Aliso Viejo-based medical device maker SenoRx Inc. raised $45 million, all for itself.

The company's stock was up 8% for the year with a market value of more than $140 million.

Seal Beach-based Clean Energy Fuels Inc. raised $120 million in its May Nasdaq open, including $110 million for the company.

Backed by legendary oilman T Boone Pickens, Clean Energy supplies natural gas for taxis, trucks and other fleet vehicles.

The stock finished the year with a 26% gain and a market value of about $660 million.

Irvine-based employment services company HireRight Inc. raised more than $65 million with its August Nasdaq open.

The stock ended the year down 14% with a $130 million market value.

At least three local companies withdrew their plans to go public.

In December, Lake Forest-based Devax Inc. withdrew its IPO filing, saying it was "no longer in its best interests."

The maker of stents coated with drugs to treat blood vessel diseases was looking to raise $85 million with a Nasdaq listing.

Laguna Niguel-based GenuTec Business Solutions Inc. had planned a $25 million offering but withdrew those plans in August, citing poor market conditions.

GenuTec makes software used to transmit phone messages for things like surveys and emergency notices.

Subprime lender People's Choice Financial Corp. withdrew plans for a $193 million public offering early in the year, before the Irvine-based company filed for Chapter 11 bankruptcy protection.

Private Equity

Despite more offerings last year, the popularity of IPOs was thwarted by competition from private equity and corporate buyouts.

"Some are finding the IPO market to be too unpredictable," B. Riley's McCarthy said.

Being acquired often is easier for companies. Some will file for an offering hoping to attract a buyout, said Emily Mendel, vice president of strategic affairs at the National Venture Capital Association.

"It's a way to become known," she said.

One drawback to going public has been steep accounting fees stemming from compliance issues with the Sarbanes-Oxley Act.

The legislation was passed in 2002 to protect investors from fraudulent accounting. It's often seen as discouraging companies from going public.

Companies tend to pay more than $1 million in accounting fees to become compliant, according to Jay Sherwood, senior managing director of Costa Mesa-based investment banking firm RSM Equico Inc., part of H&R Block Inc.

Such costs are a heavy burden for smaller companies, he said.

Next year could bring some relief after the Securities and Exchange Commission said in December it would put on hold some of its requirements for companies with market values less than $75 million.