Orange County produced more dashed hopes than new public companies in 2010.
But 2011 starts with cautious optimism for a long-awaited return of initial public offerings.
Investors, investment bankers, lawyers and others point to Wall Street’s resurgence, the performance of some recent offerings and a growing appetite for risk among investors.
“The last four or five months have been very different from the prior two years,” said Michael Flynn, chairman of the corporate and securities practice at law firm Stradling Yocca Carlson & Rauth in Newport Beach. “If the market holds, you will see some companies based in Orange County that will become public this year.”
Not counting spinoffs, the county last saw a public offering in late 2007, when Mission Viejo-based nursing home operator Ensign Group Inc. raised $64 million.
Lawyers at Stradling are working to start the registration process for going public for a few local companies in technology and retail, according to Flynn.
He declined to disclose names.
Recent gains on Wall Street are changing investor perceptions about going public, said Greg Presson, a senior managing director at the Newport Beach office of Los Angeles-based investment bank B. Riley & Co.
“We’re seeing outstanding aftermarket performance, which continues to draw investors from more conservative investments,” he said.
B. Riley is in talks with about a dozen companies looking at staging offerings, Presson said.
The November return to Wall Street of General Motors Co., which raised a record $20 billion, was a boost of confidence.
Last week’s split of Motorola Inc. into Motorola Mobility Holdings Inc. and Motorola Solutions Inc. also was welcomed by investors.
But those deals reflect a market preference for bigger offerings, according to Murray Rudin, a managing director in the Irvine office of Los Angeles-based private equity firm Riordan, Lewis & Haden Inc.
That could handicap some local hopefuls, he said.
“We don’t have a lot of billion-dollar IPO candidates,” Rudin said.
Rudin’s firm manages more than $400 million of investments and focuses on midsize companies.
Improving Prospects
Local public offering prospects should improve this year, according to Rudin. By 2012, “You (will) really see an appetite for smaller IPOs,” he said.
GM’s offering was one of 154 in the U.S. last year, according to Renaissance Capital LLC of Greenwich, Conn. That was up from 63 in 2009 and 31 in 2008, but far shy of prerecession years when totals often topped 200.
2010 was expected to be the year public offerings returned to OC. Instead, it was another year of hopefuls waiting it out or being acquired.
There was a pair of notable spinoffs.
Santa Ana’s CoreLogic Inc. emerged as a public company in June as part of a split of First American Corp.
The move also created First American Financial Corp., which is made up of First American’s former title business. CoreLogic was the former data unit of First American.
At the time of the split, First American Financial was valued at approximately $1.5 billion, while CoreLogic had a market value about $2.3 billion.
(Technically, First American Financial was the spinoff in the split, though CoreLogic emerged as a new public company in the deal.)
In November, Sun Healthcare Group Inc., an Irvine nursing home operator, split its real estate holdings into a new company.
In the deal, Sun stockholders received one share of Sabra Health Care REIT Inc. for every three shares of Sun stock they owned.
The new Sun Healthcare Group had a market value of $300 million at the time of the split, while Sabra’s market value was around $425 million.
Sun officials said they sought the split to generate money for shareholders that wasn’t reflected in Sun’s market value, which stood at about $590 million before the deal.
“The separation of the company into two pieces turned out to be a value creating mechanism for the company,” said Frank Morgan, a managing director and research analyst in the Nashville office of RBC Capital Markets LLC, the investment banking arm of Toronto’s Royal Bank of Canada.
“Both stocks have continued to rate up, and I think there was a lot of receptivity,” he said. “It’s worked out very well.”
Sun’s share price has jumped about 8% since the split, while Sabra’s has increased nearly 12% as of last week.
The spinoff trend is set to continue in 2011, said Jackie Kelley, a partner and Americas IPO leader in the Irvine office of Ernst & Young LLP.
“As more mature companies look for ways to finance the growing, entrepreneurial parts of their business, they will spin them off as new public companies and give them the chance to establish themselves and grow,” she said.
Buyouts
Companies such as Laguna Niguel-based chip startup Symwave Inc. and Irvine’s Integrien Corp. entered 2010 as potential public offering candidates. Both ended up being acquired last year.
Integrien, a maker of software for online transactions, was purchased in September by Palo Alto’s VMware Inc., a maker of virtualization software that allows different operating systems to run on a single computer.
The acquisition was estimated at $102 million.
Symwave, which makes chips for the next generation of universal serial bus ports, was bought in November by one of its backers, Hauppauge, N.Y.-based Standard Microsys-tems Corp., for undisclosed terms.
Standard Microsystems took a stake in Symwave in 2009 with an initial $5 million investment.
Symwave had been looking to expand for some time, former chief executive Yossi Cohen told the Business Journal. But a lack of financing options led it to seek a buyer, he said.
In other acquisitions here, the price was too good to ignore for management or shareholders.
“If I have some strategic buyer willing to pay the price, than that’s pretty appealing,” said Rudin of Riordan, Lewis, “especially for a veteran community that hasn’t provided some IPOs in recent years.”
Dashed Offering
Santa Ana-based dental services provider Smile Brands Group Inc. dropped plans for an initial public stock offering in May. The operator of Bright Now Dental and other brands was looking to raise $130 million after expenses in an offering.
In November, the Los Angeles-based private equity firm Freeman, Spogli & Co., the majority owner of Smile Brands, sold its majority position for an undisclosed sum to Welsh, Carson, Anderson & Stowe, a private equity firm in New York.
Other companies, such as San Juan Capistrano-based Silverado Senior Living Inc., which runs facilities that care for people with Alzheimer’s disease and other forms of dementia, put off plans for a public offering in 2010, but still are weighing the option.
“It’s always an option we want to keep open,” Chief Executive Loren Shook said. “We could go public if market conditions become favorable.”
