Restocking Time

A shortage of public companies is holding back Washington’s economic prospects.

By Bill Virgin | November 2010 | FROM THE PRINT EDITION

Bill Virgin Way back when Seattle had two general-circulation daily newspapers, the now-defunct one used to run an index of the 100 largest publicly traded companies headquartered in Washington.

The index, produced by Northwestern Trust (later Harris Private Bank), was a way of tracking the community of diverse companies in various industries that together contributed, through their executives, employees, customers, suppliers and shareholders, much of the state’s economic vitality.

In those early heady days (the index, fueled by the dot-com boom, had a one-year gain of 86 percent, far outpacing better-known national indexes), populating the Washington 100 wasn’t a problem. Even with the requirements of an in-state HQ (i.e., no Boeing when it moved to Chicago) and a market trading price of at least $1, there was a backlog of businesses to be included. As fast as companies fell off the list due to acquisitions or moves, that backlog and a vibrant initial-public-offering market provided replacements.

But the “Washington 100” proved to be something of a misnomer later in its life. The IPO market evaporated. Firms that disappeared weren’t replaced.

Harris stopped compiling the Washington 100 when the Seattle Post-Intelligencer quit publishing, but the investment company recently ran the same screen for eligible companies it once had used to compile the index.

The result: The Washington 78.

The reasons for the decline aren’t hard to fathom. Just consider the number of publicly traded companies lost in one sector, banking: Washington Mutual, Frontier Financial, Rainier Pacific, Horizon, Cowlitz and City Bank of Lynnwood.

Or consider the IPO pipeline that used to provide new public companies. In 1999, Washington state had 16 IPOs, according to data compiled by Renaissance Capital. The following year, there were 10 IPOs. The dot-com bust then trimmed the number considerably, although there were six in ’04 and four in ’06.

In 2009, there was one IPO of a Washington company. In 2008? None.

The IPO market looks a little livelier this year, with Symetra and Motricity now public. Washington also picks up an occasional spin-off, such as Clearwater Paper, which separated from Potlatch in late 2008.

Nor is it hard to figure out why Washington’s IPO pipeline dried up. The market’s continued swoon depresses the amount of money businesses might raise by going public. Investors aren’t in a mood to buy what Wall Street is selling these days, even if they had the cash, which they don’t. Between the headaches, real or perceived, of Sarbanes-Oxley, combined with dealing with Wall Street’s “never mind tomorrow; what are you doing for me this minute?” attitude, a lot of companies that could go public don’t. It just isn’t worth the bother.

But the trend isn’t any less unsettling for being easy to explain. Having a lot of publicly traded companies and IPOs isn’t only a matter for economic boasting. It’s a measure of the size, growth and potential for a city, regional or state economy.

IPOs and secondary offerings provide funds for companies to expand. Stock is the currency with which companies can buy other companies. Going public is a way for entrepreneurs to cash out, using the proceeds to fund other ventures. That’s often how it worked in banking and technology.

Private firms aren’t powerless to grow by acquisition or to reward their founders, but the task is more difficult. Nor are private companies immune to cost, price and revenue pressures endured by public companies—their investors want a return as much as shareholders do.

And while there’s always the worry that publicly traded companies are more susceptible to being acquired, downsized, moved or restructured out of recognition or existence, private ownership carries no guarantee of protection: Just ask the people in Tacoma how having one private icon—Russell Investments—acquired by another private outfit—Milwaukee-based Northwestern Mutual—kept the business in its hometown.

Lots of companies let their inventories deplete during the recession; replenishing the shelves will be both a cause and sign of recovery. Similarly, adding more public companies to Washington’s “shelves” will be an indicator the economy is on the mend and has the potential to grow, but it will also enable individual companies and the regional economy to accomplish those goals. Pardon the phrase, but it’s time to restock.