Going public has gotten better in Massachusetts
IPO growth in '05 nearly doubled
The market for initial public stock offerings improved significantly for Massachusetts companies in 2005, boosted by a brightening economic outlook and growing hunger among investors for bigger returns.
Fifteen Massachusetts companies completed IPOs last year, nearly double the number that went public in 2004. The momentum has been steadily growing. In both 2005 and 2004, more Massachusetts companies went public than had in the three previous years combined.
Although IPO activity is still far below the peak of the 1990s tech boom, which averaged more than 30 new issues per year, the increase provides evidence of a broadening economic expansion.
Indeed, the IPO class of 2005 encompasses a broad range of industry sectors, including manufacturing, retail, and financial services, as well as technology and biotechnology. Moreover, the share prices of nearly two-thirds of these companies appreciated at double-digit rates or better through March 31. Leading the pack was online printed goods supplier VistaPrint Ltd. of Lexington, with a gain of nearly 150 percent.
The IPO revival, analysts said, is underpinned by a global economic expansion boosting corporate profits, creating wealth and pumping capital into hedge funds, pension funds, and other big investment pools. Increasingly, these capital pools are seeking the potentially outsized returns IPOs can deliver.
But Wall Street isn't throwing money at any company with a business plan and website. Investors are demanding products, revenues, and profits.
''Companies need to be much more mature than in the dot-com days," said Matthew Littlewood, a local partner in accounting firm PricewaterhouseCoopers. ''You want companies with sustainable business models, that are going to continue to grow rapidly after the IPO."
Massachusetts' latest crop of publicly traded companies illustrates this trend. VistaPrint, which provides products such as business cards, brochures, and custom rubber stamps through an online e-commerce portal, was founded in 1995. It turned profitable in 2001, and today boasts 6.6 million customers in more than 100 countries. Revenues soared 66 percent in the quarter ended March 31 from a year earlier.
Hittite Microwave Corp. of Chelmsford was founded a decade before VistaPrint. Through the end of March, the maker of components for wireless, microwave, and high-speed Internet applications nearly doubled the value of its stock from its July IPO. Its latest earnings report: Revenues up 56 percent year-over-year, profits up 132 percent.
Shares of Legacy Bancorp of Pittsfield, owner of the 10 Legacy Banks branches around Western Massachusetts, have risen 50 percent since going public in October. It had by far the longest track record of this year's IPO crop: 170 years in business.
Still, investors are willing to roll the dice on younger companies, such as biotechnology firms, which typically take years to generate sales. But they're also demanding more than just promise. Biotechs not only need to get products into clinical trials, but also demonstrate their technologies will continue pushing new drugs into the development pipeline, analysts said.
Take CombinatoRx Inc. of Cambridge. The six-year-old firm combines robotics, biology, and information technology to systematically identify combinations of existing drugs that might treat diseases for which, individually, they were never intended. For example, a sedative and an antibiotic might produce an anticancer drug, said Alexis Borisy, the CombinatoRx chief executive.
CombinatoRx had seven drug combinations in clinical trials when it went public, and expects its discovery process to put more into the pipeline soon. As of March 31, CombinatoRx stock had risen nearly 70 percent.
But not all IP0s have experienced quick stock appreciation. For example, stock in Littleton equestrian products supplier Dover Saddlery Inc. dipped about 20 percent in the five months after it went public in November as profits slipped, in part because of costs related to expansion.
Dover, a 30-year-old company, launched the IPO to help finance a plan to add 30 to 50 retail stores over the next five years or so. Despite the early stock price decline, Stephen Day, the chief executive, said he expects the IPO and expansion to pay off in the long run for Dover and shareholders.
Fergal Mullen, general partner at Highland Capital Partners, a Lexington venture capital firm, said investors are taking a longer view of IPOs, searching for companies that will not only burst out of the gate, but also continue to grow,
''There's a mountain of capital out there, but it's not dumb capital," Mullen said. ''You won't get public with just a PowerPoint and a good story."
Robert Gavin can be reached at rgavin@globe.com. 