Judging by the stories that come across the wire these days, there are at least three ways that the owner of a small business can get rich reasonably quick without actually inventing a better mousetrap:
1. Think up an original idea for an Internet dot-com site and then sell it to a Fortune 500 conglomerate.2. Figure out a way for people to bypass telephone voice-mail systems and go straight to live human beings.
3. Take an existing company public via an initial public offering of stock, commonly known by its acronym, IPO.
If you chose Door No. 3, good for you. Despite all the bureaucratic hurdles to jump into becoming a public company, you have a better chance of pulling off an IPO than you do the first two choices, whose odds are about the same as winning the lottery -- 1 in 10 bazillion.
Which was the motivation last week for the first annual Utah IPO Conference sponsored by Merrill Corp. at the Little America Hotel for senior executives of local companies contemplating going public.
The first thing you should know about IPOs is that despite their seeming popularity -- and profitability -- nationwide, they're actually quite rare in Utah. Only three Utah companies went public last year, and only one this year, according to Darren J. Shaw, managing director in the corporate finance department of D.A. Davidson & Co., a regional investment banking and brokerage firm.
Specifically, the locally based companies whose owners took the plunge in 1998 were 1-800 Contacts, which sells contact lenses; Nutraceutical International Corp., a nutritional supplement company; and Iomed Inc., a biomedical firm that markets a drug delivery system.
This year the only Utah IPO has come from TenFold Corp., a designer of electronic software systems.
Normally, says Shaw, Utah is good for three or four IPOs per year, so 1999 has clearly been what he terms "a quiet period" for taking local businesses public.
All four of those IPOs were successful, says Shaw, if success is defined as completing the offering and raising the cash.
But from the standpoint of the investors who bought the shares, all IPOs are not created equal.
"IPOs usually start high. We see strong activity and immediate appreciation right out of the chute, and that was the case with these four," said Shaw. "Since then, however, a couple have done quite well and a couple have disappointed."
The biggest success to date has been TenFold. It went public last May at $17 per share, immediately shot up to $23, and has never looked back, trading last week at about $30.
1-800 Contacts shares came onto the market last year at $12.50, did well initially, then went into a tailspin where they fell well below the IPO price, and then roared back in recent months to about $26 last week.
Nutraceutical and Iomed, on the other hand, have been very disappointing to investors, said Shaw. Nutraceutical got off to a hot start, coming out at $12.75 and shooting up a month later to $22 and change. Then the bottom fell out, and by last week it was trading at $4.25.
Similarly, Iomed came public at $7.50 last year, more or less stayed there for a month or two, and then fell to a low of $2.25, but had rebounded a bit last week to $3.75.
Bottom line: Utah's IPO track record for the past two years is a mixed bag of winners and losers.
Especially for investors, but the companies can't be happy either. Sure, says Shaw, they got their money at the IPO price and can use that capital to expand, make acquisitions and otherwise execute their business plans -- the four companies raised a total of $178 million from their combined IPOs, and that's not chump change.
But more often than not, companies that go public will want to go back to the market with secondary issues, and while happy investors will be glad to get back in line, unhappy ones aren't likely to play the game again.
In any event, 75 percent to 80 percent of IPOs are snapped up by institutional investors, leaving only 20 percent to 25 percent for the retail market, meaning average investors like thee and me.
E-mail (max@desnews.com) or fax 801-236-7605. Max Knudson's column runs each Monday.