August 1, 2011

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In the Pipeline

Could IPOs by Fusion-io and Skullcandy be a Harbinger of Utah IPOs to Come?

Gaylen Webb

August 1, 2011

Salt Lake City-based Fusion-io went public in June and Park City-based Skullcandy Inc. announced its IPO in July. Could this activity be a sign that Utah’s once-cold IPO market is heating up?

Chris Anderson, an attorney in the business and finance group at law firm Ballard Spahr, says the IPO market dried up with the recession but it is coming back strong, and there are definitely other Utah companies looking to go public, too. In fact, underwriters are newly interested in Utah businesses due to the IPOs of Fusion-io and Skullcandy.

Meanwhile, Bradley Bertoch, president of the Wayne Brown Institute, says it’s all a matter of timing. Aside from the skittish equities market, he says another big factor in timing an IPO involves net sales and market cap. In some industries, before going public a company needs to have at least $100 million in sales revenue and/or a perceived market cap of at least $500 million in order to support all of the headaches of the IPO.

When Fusion-io went public in June, the company had revenue of $125.5 million for the nine months ending March 31, up from $25.3 million in the year-ago period.

Skullcandy reported its net sales increased from $9.1 million in 2006 to $160.6 million in 2010. Sales for the first quarter of 2011 were $36 million more than 65 percent greater than the first three months of 2010, which totaled $21.6 million.

Skullcandy filed an amended IPO registration document in June and plans to raise $182 million in new equity capital through the issuance of 4.2 million shares of common stock. Skullcandy shares began trading on the Nasdaq on July 20.

The headaches and expense of going public have deterred some companies from seeking that route. “Now there is a sense that public companies have greater access to capital, but that wasn’t the case until recently,” says Anderson. Some of Ballard Spahr’s clients have looked at alternatives to IPOs, such as mergers with public shells. “The prevailing thought was, if the IPO doesn’t provide greater access to capital, why do it?”

Nonetheless, he believes the IPO activities of Fusion-io and Skullcandy represent a resurgence of IPOs and an appetite by equities investors for new issuances from companies going public. Nationally, there were 46 venture capital-backed IPOs in 2010 and another 26 deals, raising $9 billion in new equity capital, in the first part of 2011, according to Anderson.

Bertoch adds that “the pipeline is building. We are starting to see the return of name players in this marketplace. Goldman Sachs was involved in Fusion-io’s IPO and may be involved in another Utah company’s IPO.”

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