In busiest year for IPOs in decades, Minnesota firms deliver mixed returns for investors

Bright Health Group Inc., when it was still a private startup, was a darling of the investor community.

The Bloomington-based startup raised more than $1.5 billion of financing — a staggering sum that put the company in the same league as emerging Silicon Valley tech firms.

Armed with money and promises for disrupting the lucrative health insurance industry, Bright Health debuted on the New York Stock Exchange in June, joining a tidal wave of nearly 400 companies that went public in 2021.

But the company is emblematic of another trait of those companies: many of them are trading for less now than when they started. Bright Health's stock has plunged 79% since going public six months ago, making it Minnesota's worst-performing IPO this year.

"2021 will be the biggest year ever for IPO proceeds," said Matt Kennedy, senior IPO market strategist with Renaissance Capital. "[But] performance is the most important factor for our clients, and by that measure the 2021 IPO market is a disappointment so far."

As of Dec. 15, there had been 399 U.S. IPOs, according to Renaissance Capital, a Stamford, Conn.-based firm that closely tracks new public companies. Eight of those are from Minnesota, the most in more than two decades.

Renaissance reports that IPOs this year raised a record $142.4 billion. That's significantly more than the combined total of $124.5 billion raised in 2019 and 2020.

Newly public companies often enjoy a honeymoon period. This year has shown more than any other the dangers of stocks being "priced to perfection," meaning any company misstep or financial blip could result in a rapid decline in investor favorability.

Several other of Minnesota's IPO companies this year saw their share prices sink after missing expectations in reported quarterly results.

Others saw a more immediate correction to their stock price once trading began on the open market — as was the case last week during Plymouth-based Fresh Vine Wine Inc.'s debut that lost 30% of its value in its first day.

But a few of Minnesota's new public companies, particularly older ones like Bloomington-based Agiliti, offered public investors more consistent results. Shares in these firms have maintained their premiums throughout 2021.

And while it was a year for new listings, it wasn't an overall impressive one. The IPO Index showed a -12.3% return this year as of Dec. 15. Last year, that same index rose 107%, making 2020 the best year for returns that Renaissance Capital had ever seen.

"After a roaring 2020 and early 2021 in the IPO market, investors were willing to pay high prices for new IPOs. Many of these were 'priced for perfection' and struggled to trade higher," said Kennedy.

Minnesota's health care IPOs have faced the biggest challenges, mirroring national trends. COVID-19 continued to cast a shadow over the financial performance of companies in health or health-adjacent industries — that includes half of Minnesota IPOs this year.

Health care stocks have accounted for 37% of U.S. IPOs this year. Those stocks are down an unhealthy 20.5%, according to Renaissance Capital's data.

This bore out in Bright Health's market performance. The company's vision was to build a new health insurance plan by partnering with a single, prominent health care provider in each market they entered.

In mid-June Bright Health expected to go public at $20 to $23 per share, but opened on June 24 at a downsized $18 per share, or a valuation of $11.2 billion. Its stock closed at $16.64 – down 7.6% — on its first day, a harbinger of what was to come.

The stock price dropped 22% after reporting second-quarter earnings in August and another 32% when it released its third-quarter numbers last month.

Ballooning COVID-19 cases raised expenses, contributing to the company's larger-than-expected third-quarter loss. "This year was, notably, a challenge," Bright Health CEO Mike Mikan said during an investor's day event on Dec. 7.

Bloomington-based Agiliti didn't have the best debut or raise the most money, but it has been the best performer of all the Minnesota IPOs, up 47% since its debut.

"We often describe Agiliti as probably the most important company in health care that few people have ever heard of," said Tom Leonard, Agiliti's chief executive. "We are not a consumer brand, we are not a household name, but we are a critical part of our nation's health care infrastructure."

Agiliti helps hospitals and health systems with medical equipment management and services, often going to sites of natural disasters or COVID-19 and flu hot spots.

The crowded market for IPOs didn't help a low-profile company like Agiliti, and its IPO priced below what was expected. Since the IPO, the company's results exceeded analysts' expectations and the stock responded positively.

Sun Country Airlines started the run of local IPOs this year. Its offering on March 16 priced at $24 a share, above the proposed offering range, and on the first day of trading the stock rose more than 50%. The stock price has slowly corrected, hovering now at about $25 a share, just above its expected IPO price.

Investors embraced the Minneapolis-based carrier's hybrid business model, which offers cargo, commercial and charter flights and sets it apart from other air carriers.

SkyWater Technology, a semiconductor manufacturer, has been the most volatile Minnesota company to go public this year. Priced at $14 a share for its initial offering on April 21, the company's stock rose more than 26% on Day One.

The company saw huge stock spikes on May 20 and Aug. 24 when it announced development deals, but saw even larger single-day declines after reporting two disappointing quarterly results.

After the third-quarter results, some analysts noted the company needed to better manage expectations for investors.

Two early stage life-sciences companies, Eden Prairie-based Miromatrix Medical and Brooklyn Park-based CVRx, went public within a week of each other in late June. Each had sparkling debuts — up 69% and 55% on their first days, respectively. But both are now below their offering price amid broader declines for small cap biotechnology stocks.

CVRx sells a minimally invasive treatment for heart failure that uses neuromodulation. Like other procedure-based device companies, CVRx has struggled during the pandemic to get patients scheduled with hospitals overwhelmed with COVID patients.

Miromatrix, using technology created at the University of Minnesota, is developing fully transplantable human organs that could eliminate wait lists for organ recipients.

"Miromatrix's recent stock price performance is not representative of its recent accomplishments ... and more a result of a weaker stock market for small-cap biotech names," Alex Nowak, senior research analyst with Minneapolis-based Craig-Hallum, which underwrote Miromatrix's IPO, said in an e-mail.

Chanhassen-based Life Time Group Holdings had the advantage of previously being publicly traded — from 2004 to 2015. The company founder and chief executive, Bahram Akradi, and private equity investors, took the company private before reemerging with an IPO this year.

It expanded the number of health clubs and added housing and co-work businesses since it was last public. Pandemic restrictions hit the company hard in 2020.

"For me personally, it's not a big event to be public or not be public," Akradi said. "You want to run the business for the good of the business, for the good of entity; everything else will fall in place."

Fresh Vine Wine went public last week. The maker of low-carb, low-calorie wines was co-founded by Hollywood celebrities Julianne Hough and Nina Dobrev and Minnesota businessman Damian Novak. It priced Dec. 14 at $10 and closed Friday at $5.73 a share.