Jul. 27--A resurgent stock market gave some second-quarter relief to investment banks still grappling with a shrinking pool of mergers and acquisitions.

Investment banks with strong ties to Minnesota helped underwrite six initial public offerings, compared to just one IPO in the first three months of the year, according to the Star Tribune Quarterly Deals Report.

Since the beginning of 2009, the Standard & Poor's 500 index has climbed 8.4 percent through Friday, while the tech-heavy Nasdaq has soared nearly 25 percent.

That momentum began in the second quarter. Piper Jaffray & Co. particularly benefited from the market upswing, managing the $141.8 million IPO of Bridgepoint Education, the $88 million stock debut of Duoyuan Global Water Inc. of Beijing, and the $112.5 million IPO of Rosetta Stone Inc.

More importantly, the stocks Piper Jaffray took public have continued to perform well, earning the company a 40 percent return. For example, Rosetta Stone closed Friday at $26.91, up nearly 50 percent from its $18 IPO price. Duoyuan closed Friday at $29.42, an 84 percent gain from its $16 debut.

The Minneapolis-based investment bank reported a second-quarter operating profit of $11.6 million, compared to a $1.5 million loss during the same period last year.

"There were improved conditions in the second quarter for sure," said Jon Salveson, head of investment banking for Piper Jaffray. While Salveson remains cautious about market volatility, "It feels a little better than the nuclear winter we had the last few quarters."

Nationally, investment banks generated $406 million from 10 IPOs, compared to just one the previous quarter, according to Dealogic. However, those numbers are significantly down from the second quarter 2008, when banks generated $1 billion from 17 stock offerings.

"Any recovery in the IPO market still has a long way to go before volume and revenue return to normal levels," the Dealogic report said.

Banks, energy companies and real estate investment trusts also took advantage of the market surge to replenish their balance sheets. Piper Jaffray helped U.S. Bancorp raise $2.5 billion in additional equity.

The United States set a quarterly record with $91.4 billion in follow-on deals. RBC Capital Markets alone managed 34 additional equity deals in the second quarter.

Frosty M & A market

But any optimism among investors was tempered by weak demand for mergers and acquisitions due to the still frosty credit markets.

Minnesota-related investment banks advised just 27 deals, the state's third consecutive quarterly decline. Nationally, banks advised 1,527 mergers and acquisitions, compared to 1,923 during the same period in 2008.

Salveson said buyers and sellers were still uncertain about how to value deals. Private equity firms are also finding few takers for the prices they are asking from potential buyers. Either they sell at a loss or grow their companies to a point where they can justify their valuations, he said.

Among the notable local deals in the quarter was Medtronic Inc.'s $700 million acquisition of CoreValve Inc., a heart valve maker based in Irvine, Calif. (Piper Jaffray); Minneapolis-based Stone Arch Capital's recapitalization of Asset Marketing Services Inc. of Burnsville (Lazard Middle Market in Minneapolis); and Polaroid Corp.'s $85.9 million cash and equity sale to Hilco Consumer Capital of Toronto and Boston-based Gordon Brothers Brands (Houlihan Lokey Howard & Zukin's Minneapolis office).

In many ways, Medtronic represents the mentality of buyers today. Although the company has billions of dollars in cash to spare, the Fridley-based medical device giant has been "surgical" in making acquisitions, Salveson said.

Medtronic "has been very purposeful, very strategic," he said. "The company is going after what it feels will be large markets over a long period of time. They want to be in the best position with the best properties when that time comes."

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