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Bouncing Back

When IPO plans flop, companies in need of capital find new ways to make financing work.

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By Carol Tice

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Every year, hundreds of companies file papers with the SEC announcing their intent to go public. But not every company's plans for an IPO come to fruition. About 1 in 5 end up being withdrawn, says Paul Bard, vice president of research for research firm Renaissance Capital: 51 IPOs were scratched in 2007, 47 in 2006 and 54 in 2005.

Earlier this year, with public markets gyrating due to problems in the subprime mortgage sector, things were shaping up to set a record for canceled IPOs. Over the past five years, a typical month saw five or fewer canceled IPOs. This year, eight companies withdrew their IPOs in January and 11 did so in February, says Bard.

So what happens when a company's IPO plans flop? We took a tally of the 51 businesses that withdrew IPO filings last year. The results: Only three bids had expired; five companies appeared to have run into financial distress; 11 merged with other companies or were acquired; six secured alternate funding; four found other ways to go public that avoided an IPO; and the largest number, 22, simply made do without their planned IPO funding. Their stories show that losing out on an IPO isn't necessarily a disaster. Here are the tales of two companies that came out relatively unscathed:

Who: Keith Blakely, 51, CEO
Company: NanoDynamics Inc., a $5.5 million developer and manufacturer of advanced materials, solid oxide fuel cells and water filtration technology in Buffalo, New York
Founded: 2002
Filed for IPO: May 2007
Withdrew IPO: November 2007
Planned to raise: $85 million
NanoDynamics, which makes everything from golf balls to advanced fuel cells to concrete additives, encountered stock market turbulence during its IPO bid. "The market slid 500 points within days of us going on our roadshow [to pitch investors] in July," says Blakely.

With its IPO prospects looking bleak, the company sought other sources of funding, landing a $10 million joint-venture investment from Shell Technology Ventures in October of last year. Shortly after, NanoDynamics pulled its IPO filing.

Once NanoDynamics had withdrawn its IPO, it conducted a strategic review. Decisions were made to put some research projects on hold while the company focused more on selling its finished, marketable products. The plan has kept NanoDynamics growing--and it has also kept costs within the company's financial limits.

Who: Todd Cozzens, 52, president, CEO and vice chair
Company: Picis Inc., a $115 million hospital-software company in Wakefield, Massachusetts
Founded: 1994
Filed for IPO: August 2006
Withdrew IPO: July 2007
Planned to raise: $86.2 million
Picis pulled the plug on its IPO because it spotted an enticing acquisition, competitor Lynx Medical Systems, and needed funding fast to beat out other suitors. So instead of going through with its IPO, Picis tapped one of its IPO underwriters, Goldman Sachs, for help. Goldman provided $155 million to fund the Lynx acquisition, which closed in August of last year.

In an effort to integrate its acquisition, Picis has since beefed up its management team. The company has also signed up key new customers, who are drawn to the company's new capabilities. And an IPO could still be in the future. Says Cozzens, "We can still drive our own destiny."

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