NanoDynamics looks for green energy in IPO

by Rich Acello, Small Times Contributing Editor

May 29, 2007 — Once initiated at the drop of a plausible idea, initial public offerings have been in serious decline since the turn-of-the-century dotcom bust. As institutional investors have raised the bar for entry into public markets, start ups have increasingly relied on alternative exit strategies. The passage of the Sarbanes Oxley corporate reporting requirements has taken some of the luster off the IPO as well.

Thus, when NanoDynamics Inc. of Buffalo, N.Y., filed papers to raise a $100 million in an IPO on May 4, eyebrows were also raised. Some experts see the NanoDynamics move as a harbinger of IPOs to come.

“We’re just at the beginning of a curve,” says Lawrence Gasman, principal analyst for nanomarkets.net of Glen Allen, Virginia. “High tech finance is back in fashion, so don’t be surprised if there are others like this.”

The number of shares and pricing of the NanoDynamics IPO hasn’t yet been determined. NanoDynamics plans to use proceeds from the stock sale to fund expansion of its manufacturing capabilities for clean energy products from fuel cells to water filtering technology.

Earlier this year, the company said it had developed a silver nanoparticle 20 nanometers in diameter that has “great potential” in retarding the growth of bacteria, mold, and harmful spores such as anthrax.

NanoDynamics has also entered a partnershsip with Ames Goldsmith Corp., a leading supplier of silver products to the electronics industry, to commercialize silver nanomaterials.

Calls to company executives were not returned, which is not unusual after the filing of an IPO, generally considered a “quiet period,” but Gasman says NanoDynamics’ products are developing in potentially lucrative niche areas.

“The fuel cell product could increase the efficiency of fuel cells which haven’t really taken off,” Gasman says. “But eventually the relative economics of fuel cells makes it a more attractive (product niche). The IPO should certainly get them into commercial operation.”

About 155 companies went public in 2006, down from about 161 in 2005, according to Jay Ritter, professor of finance at the University of Florida.

Scott Stanton, a partner at Morrison Foerster in San Diego who handles IPOs, says the crop of companies going public now is stronger than in the past.

“And with the (stock) market at an all-time high, valuations are getting attractive,” Stanton says.

Filing for an IPO doesn’t mean that one will take place. A company that files an IPO may actually be fishing for a better deal. “They might file to go public in an effort to use that as a stalking horse to drive an M&A (mergers and acquisitions) process,” Stanton explains. “Some companies go public because they can’t find a buyer.”

Another factor that could put a damper on a new round of IPO fever is Sarbanes Oxley, with its rigorous reporting requirements enacted the wake of the Enron scandals.

“Some companies that might be able to go public don’t want to go public,” Stanton says. “It’s a real factor. Some entrepreneurs would just rather start a new company.”

Gasman says the NanoDyanamics filing could be the sign of renewed interest on the part of investors following the Nanosys pull out in 2005.

“Nanosys was going to be next Netscape, that some expected to launch a boom, the way Netscape helped launch the Internet boom,” Gasman says. “After Nanosys pulled out, some the interest declined, but interest comes in waves, and maybe we’re coming back now.”

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