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Arkansas startups chasing Wal-Mart legacy, looking for the next big IPO Sunday, Mar 26, 2006 By Wesley Brown Arkansas News Bureau LITTLE ROCK - Everybody in Arkansas knows a relative or friend who swears to have had a chance to get in on the ground floor when a little-known Arkansas five-and-dime went public 36 years ago. That tiny variety store, of course, grew into Wal-Mart Stores Inc., the world's largest retailer with annual revenues of more than $285 billion. Wal-Mart stock has risen nearly 13,000 times in value. Though the company has been mired in a five-year losing streak, a $1,000 investment in the Wal-Mart's initial public offering would now be worth about $745,000 after stock splits and other adjustments, according to John Taylor, a broker with Sterne, Agee & Leech Group in Forth Smith and Rogers. Given Wal-Mart's icon status on Wall Street and similar rag-to-riches stories of other Arkansas-based Fortune 500 companies, the Natural State would appear to be fertile ground for starting and growing a new company. But between Wal-Mart and virtually unknown over-the-counter stocks such as Champion Auto Parts in Hope and ThermoEnergy Corp., there is a dearth of mid-sized, knowledge-based and next-generation public companies in Arkansas. "One of the things we have not done well is look at the competitive landscape - it is very severe," said Ron Goforth, president of technology consulting firm Beta Rubican Inc. The ferocity of that competition for new jobs and industry can especially be seen in initial public offerings, he said. The last IPO launched in Arkansas was Van Buren's Loislaw.com on Sept. 29, 1999. Even that Internet experiment has quickly flamed following Dutch media giant Wolters Kluwer buyout of the Arkansas online legal service in 2001. Arkansas could birth a public company the non-traditional way by the end of the third quarter. Alltel Corp. announced plans in December to spin off its local wireline telephone business and merge it with Irving, Texas-based Valor Communications Group Inc. in a $9.1 billion deal that would create a new public company in Arkansas that is expected to trade on the New York Stock Exchange later this year. Also, Conway-based Home Bancshares is poised to become the state's next true IPO by year's end. The bank, which has more than 40 branch locations in central Arkansas and Florida, announced March 14 that it plans to sell as much as $51 million in common stock and trade on Nasdaq under the stock symbol "HOMB." Still, Andy Lagrone, senior portfolio manager and analyst for Lathrop Investment Management Corp., said Arkansas is missing "self-reliant, tough-minded" entrepreneurs like Jack and W.R. "Witt" Stephens, Sam Walton, John W. Tyson, William Dillard and Joe Ford. "In that light, I would think that the Stephens family demonstrated all the way back to the depression years that calculated risk-taking can pay off handsomely," said Lagrone, past president of the state Financial Analysts Society. "They also demonstrated that once you've achieved a significant success, it's okay to try for more - even on a multi-generational basis." Lagrone, whose firm currently manages more than $200 million in assets, said the success of those earlier capitalists still influences private companies of all sizes in Arkansas today. The state's next publicly traded company could easily spring up in booming northwest Arkansas, he said. Others believe business incubator programs in central and northwest Arkansas also could eventually hatch a publicly traded company, but that could also take some time. Goforth and Timothy O' Brien of Little Rock have been two of the leading voices in Arkansas for the need to diversify the state's economy by investing in emerging biotech, technology and knowledge-based in Arkansas. O'Brien, director of the BioVentures Center at the University of Arkansas for Medical Sciences, said although Arkansas has birthed several startup firms in recent years, there is still some difficulty in attracting capital here to take companies from the infant stage to full independence. "We compete very well in that arena of angel and seed development," O'Brien said, "but the maturation of biotechs is usually longer in terms of return on cash and profits." Goforth mentioned a Fayetteville startup called NanoMech LLC as a knowledge-based company with big promise. The company recently received a national award for pioneering research in the field of nanotechnology, sometimes called "the science of the ultra small." NanoMech was founded by University of Arkansas-Fayetteville researchers who now own the exclusive rights to a coating technology that can be applied to tiny objects that are 1/1,000th to 1/10,000th the width of a human hair. "NanoMech is putting Arkansas on the map for the progressive technological development going on in the state," U.S. Sen. Mark Pryor, D-Ark., said on March 7. "Their groundbreaking work is a prime example of how investments in nanotechnology can result in real-world applications." Still, Goforth said the competitive landscape between the time an entrepreneur comes up with a good business concept and finally achieves commercial success can be formidable. "There are people that are interested in seeing technology and knowledge-based companies, but the people who have money perceive it as a risk compared to such visible investments like real estate - where you can see the dirt being turned," he said. Both Goforth and O'Brien pointed to Safe Foods Corp. as the state's best example of an incubator company that is now full grown. Founded in 1999, the North Little Rock biotech firm owns the rights to a market a patented product called Cecure, an antibacterial spray that can eliminate E. coli, salmonella and other pathogens in poultry, meat and pork. The product's active ingredient, cetylpyridinium chloride, is found in numerous over-the-counter oral hygiene products such as mouthwash. However, it took more than five years for the Federal Drug Administration to approve Safe Food's application to market the product developed by UAMS scientists and the poultry science department at UAF. Today, Safe Foods is still looking for commercial success, although company officials forecasted during a venture capital forum here in 2002 that Cecure's yearly revenues had the potentially to grow to $265 million. Despite the potential, Goforth said the lack of commercial success so far by Safe Foods and other biotech and technology startups could cause other companies to think long and hard about taking risk in the near-term or going public later. "You just can't speed up the FDA," Goforth said of the inherent gamble faced by companies that need government approval to market new technology. O'Brien and Goforth did agree on the need to get potential investors and Arkansas entrepreneurs at the same table more often, along with asking current business leaders to mentor younger entrepreneurs about prudent risk-taking and successful management styles. O'Brien said BioVentures was recently involved in a regional consortium that gave investors in opportunity to look at Arkansas startups at the mezzanine or "middle- market" stage of development - when companies are low on cash or have exhausted existing lines of credit |
