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Applied Medical Says IPO Will Spell OTC

Applied Medical Resources Corp. remains among the ranks of Orange County’s private companies—for now.

The Rancho Santa Margarita-based medical device maker hasn’t yet acted on an investor-driven initial public offering filed in November with an aim of raising $95 million through the sale of 6.4 million shares of common stock.

Applied hasn’t withdrawn the offering, according to General Counsel Michael Vaughn.

The company said in a more recent regulatory filing that it would be listed on the low-profile over-the-counter bulletin board exchange. Vaughn declined further comment.

The IPO filing has caused a rift between the company and Institutional Venture Partners, a Menlo Park firm that invests in late-stage companies.

IVP owns about 20% of the device maker and is the force behind the filing. It didn’t respond to a request for comment.

Applied makes a range of medical devices, including ones used in laparoscopic surgeries, as well as catheters, clamps, stents and guide wires. It competes with companies such as Johnson & Johnson of New Brunswick, N.J. and Covidien plc, which is based in Bermuda and operates out of Massachusetts.

Applied ranks No. 40 on this week’s list of largest private companies based in Orange County (see list, page 16; related stories throughout issue) with an estimated $340 million in annual revenue.

Disagreement

The disagreement between the company and IVP is clear.

IVP “is compelling us to register shares of its Class A common stock for sale in order to provide liquidity for its limited partners,” Applied said in its registration statement filed with the Securities and Exchange Commis-sion.

Applied has argued in its filings that going public is not in its best interest. It said “our board of directors believes that we will derive little benefit to from being a public company and the public disclosure of sensitive financial and other information to our competitors may competitively disadvantage us.”

The company also has said that its stock would not be listed on a major exchange, and it has no plans to engage with stock analysts.

“The company is not shy about saying how they feel,” said Adam Goldston, a managing director with B. Riley & Co., a Los Angeles-based investment bank with a Newport Beach office. “They’ve said it in very, very blunt terms that this is the wrong thing to do.”

Applied also said the plan to issue stock on the over-the-counter bulletin board exchange could “limit the liquidity, trading volume and price.”

“Liquidity Conscious”

That has some market watchers spooked.

“You’re going to be at best, a $400 million (or) $500 million-market cap company,” B. Riley’s Goldston said. “That’s a difficult place to live these days—investors are risk-averse, they’re liquidity conscious, they’re going to buy IBM and Microsoft and ExxonMobil because they know they can get out. This one, you don’t know. Who are the market makers?”

Another market observer has a different take.

“We’ve seen many situations where a shareholder is forcing a liquidity event at a point in time that may or may not be viewed as optimal for the other shareholders,” said Allan Siposs, a managing director with FMV Capital Markets Inc. in Irvine. “What’s unusual is that IVP is seeking that liquidity event through an IPO in a very public setting where there may be discord amongst the shareholders and disagreement about the strategy of the company.”

Siposs didn’t rule out the possibility that public markets could be receptive to businesses of Applied’s size in the current business climate.

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