Minnesota's newest public companies from Bright Health to Life Time stumbling on stock market

Minnesota's investment community was excited in 2020 and 2021 when the state saw a jump in companies going public.

Now, not so much. The stock prices of the 10 public companies have tanked, on average falling 60% since their initial public offerings. Some have downright tanked.

"Too many companies went public, particularly in 2021 and early '22 that, frankly, shouldn't have. And we have a couple of those in Minnesota," said John Stavig, program director for the University of Minnesota's Holmes Center for Entrepreneurship.

Over the past 20 years, the number of Minneapolis public companies dwindled from well over 100 to less than 80.

The 2020-21 period was the first time in years the number of new public companies outnumbered the companies that went private, were acquired, moved or went bankrupt. The companies also spanned sectors, from insurance to technology and wine.

"When the opportunities are there, and the companies are optimistic, it's hard to say no," said Stavig, who had a long career in private equity helping startup and early-stage companies.

When nationally there are five times the average number of companies going public, the offering price shifts higher. And some of those companies then have a "very challenging road," he said.

Take the largest and smallest of the Minnesota IPOs: Bright Health and Fresh Vine Wine. Both are now far from the pomp and circumstance that accompanied their market debuts, having lost 95% of their value.

Bright Health, based in Bloomington, had the largest IPO in Minnesota history when it raised $924 million in June 2021. The stock price was $18 and has never closed above that level since that day. Today — after a 1 for 80 reverse stock split to avoid being delisted — shares trade at about $7.

Bright Health was a darling of the private equity world before the IPO as it aimed to disrupt the health insurance market through heavy use of technology. The company struggled, shifted strategies and now has almost completely exited the insurance market. It also saw an exodus of top management.

Minnetonka's Fresh Vine Wine paired with two Hollywood celebrities to pitch "better for you" wines direct to consumers as well as through retail outlets. The company went through several CEOs in the past two years and cut ties with their celebrity investors, Nina Dobrev and Julianne Hough, after it could not pay them residuals.

Now, the company is seeking strategic alternatives and has been given notice its stock could be delisted.

Across the country, much of the new crop of public companies has struggled to keep its share prices high. According to Renaissance Capital, a provider of pre-IPO research and IPO-focused investment products, shares of companies that had 2020 IPOs lost on average 39% of their value through Oct. 9. Shares of 2021's class of IPOs are down an average of 50%.

IPO price performance is one factor contributing to a drought of public offerings in 2022 and 2023.

"When the Fed started rapidly raising rates in order to tackle inflation, you could say the music stopped and the tide went out. Valuations plummeted back to more normal levels, and investors started caring a lot more about profitability," said Matthew Kennedy, senior market strategist at Renaissance Capital.

Minnesota saw one company go public last year — Foxo Technologies — and that was through a special purpose acquisition corporation (SPAC). It has not fared well either. The medical testing firm has purged its executive ranks, is being investigated by the Securities and Exchange Commission and is looking for strategic alternatives.

Agiliti, which went public in April 2021, was a darling during the pandemic. The medical equipment rental and services company benefited from high health care usage, but now health systems are shifting their spending, and it has cut into Agiliti's margins.

Investors also are concerned that the company has elevated debt levels.

After releasing not so great second-quarter results in August, the company's shares sank 28% and continued to slide.

Since then, longtime CEO Tom Leonard, who had retired in March, has returned to the helm, bringing with him some grace from the investment community.

"Given Tom Leonard's prior track record, we see this change as a positive for Agiliti and repositioning the company's operational profile," wrote Drew Ranieri, an analyst with Morgan Stanley, in a recent investor note.

One of the newer public companies, Trean Insurance, was acquired for $6.15 a share, less than half the $15 a share price of the April 2021 public offering.

Nadim Yared, chief executive of CVRx, said share price is not the only metric on which executives need to focus. The company makes an implantable medical device that helps treat heart-failure symptoms. Executing the business plan to deliver the long-term results forecast is another key metric, he said.

While CVRx's share price also has fallen, revenue has grown from $3.1 million the quarter it went public to $9.5 million in the quarter ended June 30.

"But stock price is important," Yared said. "And it's important for shareholders to make sure that their investments are worthwhile."

Life Time Group Holdings went public for a second time at a difficult time for the company. Its fitness clubs faced temporary closure or restrictions from COVID-19 and were still struggling to pull members back when it launched its latest IPO in October 2021 to raise $702 million.

The company is growing again now, opening 10 new centers in 2022 and nine more this year. It also turned a profit in the four most recent quarters it has reported, with revenue growing an average of 31% a quarter.

As a result, the company has seen better returns on the stock market, even if they've been rocky.

Bahram Akradi, Life Time's founder and CEO, has led the company since its start in 1992 and said he has no regrets about becoming a public company again.

His universal advice for other public company CEOs staring at their share counts and price changes is to look long term.

"You need to serve the entity. The right move for the company may not be the best move for the stock. Hopefully, you can do both," Akradi said. "You've got to have a priority chart, and then you need to serve that priority."

Star Tribune staff writer Burl Gilyard contributed to this story.