L.A. firms get mixed results from public offerings.

COHR finds greatest success among L.A. bunch

L.A. COUNTY - Initial public offerings have been flowing like water on Wall Street this year, and L.A. County companies are garnering a sizable piece of the action. But while some local companies have scored big successes on Wall Street, others have received only lukewarm interest from investors.

Eight L.A. County-based firms issued IPOs in the first 15 weeks of 1996, according to brokerage house Crowell Weedon & Co. of downtown L.A. That marks a dramatic increase from the like period of last year, when only one L.A. County-based company went public. And it is one more than the seven finns that issued IPOs during the first 15 weeks of 1994.

Among L.A. County firms, this year's most successful IPOs have come from L.A.-based COHR Inc. (up 193 percent as of May 21 closing), Calabasas-based Xylan Corp. (up 181 percent) and ISOCOR of Santa Monica (up 104 percent). COHR provides medical services and equipment to hospitals, while Xylan manufactures local area network computer switching technology, and ISOCOR makes computer messaging software.

COHR's success owes largely to its position as a major player in the fast-consolidating health care industry, according to Lloyd Greif, president of downtown L.A.-based investment bank Lloyd Greif & Co.

"In COHR's case, you're looking at a company that wants to consolidate the health care independent service organization industry," said Grief. He pointed out that COHR has acquired 14 companies in the last three years, including three since its IPO in February.

"A company (like COHR) that grows through acquisition can triple or quadruple its earnings performance in a very short time," Greif said, explaining COHR's attractiveness to investors.

High-flying tech

L.A.'s second and third most successful IPOs in 1996 - Xylan and ISOCOR - have both come from the red hot high-tech sector. In fact, Xylan scored one of the country's most successful IPOs for 1996, when its stock price more than doubled from its initial offering price of $26 per share to $58.375 during its first day of trading on March 13.

Unlike Xylan, ISOCOR was slower out of the gate when the stock began trading in mid-March. But like Xylan, ISOCOR has performed well since its initial offering, rising more than 100 percent in value over the past two months.

"I don't think the market fully understood ISOCOR" when its IPO first came out, said Brad Jones, a general partner at Century City-based venture capital firm Brentwood Associates, one of the earliest venture capital supporters of both Xylan and ISOCOR.

"Since the offering, though, there were a couple of pieces (articles) written, and ISOCOR did an agreement with (software maker) Oracle Systems Corp. So now people are understanding the company better," he added.

Both Xylan and ISOCOR benefited from their status as high-tech companies, but equally important was their status as producers of niche products within their respective high-tech fields, according to Jones.

Small and uninspired

"Most of these companies (like Xylan and ISOCOR) have fast-growing earnings. They tend to be fairly recession-resistant because they have relatively unique products," he said.

After COHR, Xylan and ISOCOR, the only other L.A. County-based IPO to significantly outperform the market this year has been Sherman Oaks-based Kaye Kotts Associates, which provides legal representation for delinquent taxpayers.

Unlike the three most successful offerings, however, the Kaye Kotts IPO generated a relatively small amount of capital, about $5 million. By comparison, COHR's IPO generated $27 million, Xylan's generated $109 million, and ISOCOR's generated $18 million.

"For Kaye Kotts, the offering was pretty small, and the stock is pretty thinly traded. So it's pretty easy for the price to move," said Greif, explaining a possible reason for Kaye Kotts' 53-percent jump in value since the stock was first offered to investors in February.

And, in fact, L.A. County's four remaining IPOs - none of which has significantly outperformed the market - were all relatively small, in the $10 million-or-less range.

Greif explained that smaller offerings tend to be less glamorous to investors, often because of their size. In addition, smaller offerings typically are underwritten by smaller investment banks, which often have less resources and expertise to market the IPOs than their larger counterparts have at their disposal, he said.

But be they big or small, sources said, L.A. County-based IPOs should continue to flow at a steady clip for the foreseeable future, though there was less agreement over whether the stream of new offerings would continue at its present pace for much longer.

In particular, some sources said the supply of good-quality IPO candidates soon may dry up, as strong companies rash to take advantage of the current bull market, leaving only marginal companies to issue future offerings. As a case in point, seven Brentwood Associates-funded companies went public in the first five months of this year, but only four more have IPO plans in the remaining months of 1996, according to Jones.

"There might be a slowdown (in IPO activity later this year) due to lack of quality companies. The pace may slow down because there may simply not be enough quality companies to go around," he said.