IPO Watch: Transoma Medical

Ann C. Logue | Jan 29, 2008 6:20am EST | Comment

Rating: Unrated [rate it]

www.transoma.com
Nasdaq: TSMA
Scheduled for the week of Feb. 4
$63 million estimated proceeds
$289.6 million estimated post-money valuation

Transoma Medical makes implantable monitoring devices used in biomedical research, often to monitor how a drug affects laboratory animals. It is branching out into a bigger market involving bigger animals: implantable devices monitoring human cardiac patients. The Sleuth Implantable ECG Monitoring System, which takes about 15 minutes for a doctor to implant, is used to monitor such factors as blood pressure and heart rate. This helps doctors know what’s really going on with their patients, including how well they are complying with therapy. In October 2007, Transoma received FDA approval to market the device to patients with unexplained cardiac arrhythmia or syncope. Given that 79 million people in the United States suffer from cardiac diseases, the company estimates that the monitoring device market could be $2.1 billion. There is competition; Medtronic, Inc. (NYSE: MDT) has a similar product.

The company has been around since 1984, and it has an accumulated shareholder’s equity deficit of $34.9 million because of years of losses. For the year ended June 30, 2007, Transoma booked revenues of $37.2 million and a loss of $9.1 million. The company is counting on losses to subside as the Sleuth system is accepted by the market. The firm is backed by Polaris Ventures and Canaan Partners, which will hold 34.64% of the stock after the offering and which are not selling any shares. The company’s co-founder and CEO, Brian Brockaway, is planning to sell 96,000 of the 2.1 million shares that he holds, which is less than half of 1%. He will control 11.18% of the company shares after the offering.

The deal proceeds are earmarked for general corporate purposes and working capital. The funds should help the Sleuth monitor gain a market foothold and thus turn Transoma to profitability, or so the company hopes. The cardiac market is huge and better monitoring could potentially head off a lot of emergency surgery. However, Transoma has a string of losses and an enormous competitor. If doctors accept the Sleuth monitor, this company is a likely candidate for acquisition.

Upcoming IPOs:

ATA (www.ata.net.cn; Nasdaq: ATAI; Jan. 28; $244.7 million post-money valuation): Nope, not the discount airline; this is a Chinese company that provides testing services for both academic institutions and professional training and certification. Its clients include the China Banking Association and the Securities Association of China, and the company is likely to grow as China’s institutions and professional classes do. It is small and barely profitable, earning money for the first time in the six months ended Sept. 30, 2007, with RMB8.7 million on revenues of RMB76.2 million. (One U.S. dollar is worth 7.23 RMB.) The proceeds will go for general corporate purposes.

ReneSola (www.renesola.com; NYSE: SOL; Jan. 28; $1060.0 million post-money valuation): ReneSola makes silicon wafers used in solar cells. It’s based in China, which, like much of the developing world, needs infrastructure. Solar power is a relatively cheap and easy way to power equipment where the electric utilities might not be up to the task. The company produces components capable of generating 378 megawatts worth of power each year. It is profitable, too, with revenue of $152.9 million and profits of $25.5 million for the first nine months of 2007. The deal will fund expanded manufacturing facilities, in hopes of growing revenues for decades to come.

Recent IPOs:

Sports Properties Acquisition Corp.: (AMEX: HMR-U; Jan. 17; $250 million post-money valuation): Would you give money to someone in hopes that they could spend it responsibly? Without knowing how they would spend it? Me neither, but blank check companies are one of the few bright spots in the IPO market. Investors gave the management of Sports Properties Acquisition $250 million to go out and buy businesses in the sports, entertainment and leisure industries. Fortunately, the management team has some relevant experience. The chairman is Jack Kemp, a former NFL player and a former vice-presidential candidate. He is joined by Mario Cuomo, Hank Aaron and Tony Tavares, the last president of the Montreal Expos.

Sapphire Industrials Corp.: (AMEX: FYR-U; Jan. 17; $800 million post-money valuation): This blank-check company plans to acquire industrial companies, making it a bit like a private equity fund for the average Joe. It’s managed by Lazard, an investment bank that is retaining a 20% stake in the company. No deals have been announced yet, so it’s unclear what, if anything, Sapphire will buy. And yet, these blank-check deals have been getting done in recent weeks, unlike many traditional IPOs.