IPO Watch: Titan Machinery

Ann C. Logue | Feb 26, 2008 6:20am EST | Comment

Rating: Unrated [rate it]

www.titanmachinery.com
Nasdaq: TITN
Priced Dec. 5, 2007
$51.0 million proceeds
$99.2 million post-money valuation

It’s too late for the IPO; the deal was priced in December. That was back when IPOs could get priced. Given the paucity of offerings in the current market, it seems like a good time to look at what companies have been able to go public, and Titan Machinery has the honor of being the top IPO in terms of aftermarket performance in the last six months. The stock has more than doubled since the deal closed on Dec. 5 and now has a market capitalization of $258 million.

This high flier operates in a grounded industry. It’s a chain of farm-equipment dealerships headquartered in Fargo, N.D. Titan represents agricultural and construction machinery made by CNH Global (NYSE: CNH), sold under the Case and New Holland brands. Its 39 stores are in North Dakota, South Dakota, Minnesota and Iowa. Hence, most investors could go through life without ever seeing one of Titan’s operations. The company’s customers, however, have come to see it as a reliable source for the parts and equipment they need to keep their own businesses operating.

Because demand for its lines is more or less fixed, Titan’s plan is to grow through acquisition. Most of its competitors are small, operating only one or two stores, and in some cases, the owners are interested in retiring and don’t have family members who want to take over. Since the IPO, Titan acquired Ceres Equipment, a Case-New Holland dealer in Roseau, Minn., that should add $11 million in revenue. Once a business is acquired, Titan can grow profits by standardizing processes, getting volume discounts on its inventory, and advertising more efficiently.

Titan reported its third-quarter earnings in January, for the period ending Oct. 31, 2007. For those nine months, it posted $297.8 million in revenue, up from $208.6 million for the first nine months of fiscal 2006. Earnings more than doubled, to $4.9 million from $2.3 million.

Outside of “The Bridges of Madison County,” agricultural equipment isn’t sexy. This isn’t a blank-check company looking to acquire Chinese biotechnology businesses. Instead, it’s an ordinary business with an ordinary consolidation strategy, a soothing strategy in a nervous market. Titan is small, but management is already delivering on its mighty plans.

For more on Titan, see Titan Machinery: Having a hoedown, Feb. 22.

Upcoming IPOs:

China Resources Ltd. (AMEX: CRX.U; scheduled for week of Feb. 25; $50 million post-money valuation): Not the China Resources Enterprises that already has a fine business in Hong Kong, this China Resources combines everyone’s two favorite IPO trends: blank-check companies and China. This firm hopes to raise money to acquire natural resource business in China. The officers and directors, only one of whom is considered to be independent, have experience in metals trading and mining. The real test of their deal-making skills will be their ability to get this transaction closed.

Global Alternative Asset Management (AMEX: GLE.U; scheduled for week of Feb. 25; $187 million post-money valuation): The name of the game is buying low and selling high, and with this weak stock market, asset management and financial services firms are likely to be cheaper. So why not give someone a blank check to acquire an unspecified alternative asset management business or businesses? The executives of this special purpose acquisition company have financial services experience and are affiliated with Fortune Management, a German private equity firm.

Recent IPOs:

BioHeart (www.bioheartinc.com; Nasdaq: BHRT; Feb. 18; $75.6 million post-money valuation): BioHeart is a biotechnology firm that develops repairs for hearts that are damaged by heart attacks rather than romantic misadventures. It’s in a dreadfully early stage; the product has completed Phase II clinical trials in Europe and Phase I trials in the United States, and the company lost $9.2 million on $276,000 in revenue for the first nine months of 2007. The money raised will keep it going as it moves through the approval process.

Asia Time Corporation (AMEX: TYM; Feb. 11; $29.4 million post-money valuation): What a nice, simple business: Asia Time distributes watch parts to Chinese assembly companies, most of which are making watches for the Chinese and Hong Kong markets. All these new capitalists have to get to work on time! This was originally structured as a blank check company, but it didn’t come public until after the acquisition was made. The company is profitable, too. The problem? Asia Time is tiny by public market standards. For the first nine months of 2007, it had $64.9 million in revenue and $3.9 million in profit, with a 3.3% year-over-year growth rate in sales.