Oct. 25--Call it the deal-less recovery.

Despite an uptick in stock offerings, investment banks with strong ties to Minnesota advised a paltry 29 mergers and acquisitions in the third quarter, only two more than the previous three months, according to the Star Tribune Quarterly Deals Report.

For the first nine months of 2009, local banks managed 86 M&A deals, down 52 percent from the same period a year ago. RBC Capital Markets, normally a prolific deal maker, reported no mergers and acquisitions in the quarter.

Minnesota's stagnation mirrors the nation's: 1,679 deals in the third quarter, two fewer than the second quarter, according to Dealogic. So far this year, the country's investment banks collectively advised 5,217 mergers and acquisitions, a 22 percent drop from the first three quarters in 2008.

The dearth of deals suggests, despite early signs of an economic recovery, companies still can't access credit.

"The institutional [credit] market is locked up, not available," said Jon Salveson, head of investment banking for Piper Jaffray & Cos. in Minneapolis. "Acquisitions are still quite tough."

Still, Salveson sounded upbeat: Initial public offerings (IPOs) are showing signs of life, thanks to a surge in the stock market. Since early July, the Dow Jones industrial average jumped 22.4 percent to close Friday at 9,972.18, while the S&P 500 index rose 23 percent to close at 1,079.60.

Minnesota banks' IPO output this year (15) already matches all of 2008. Nationally, banks underwrote 13 IPOs in the third quarter alone -- more than the previous two quarters combined.

"The pace is quickening," Salveson said. "The fourth quarter will be even better. It could even get back to normalized levels."

Piper Jaffray helped underwrite the $931.5 billion IPO of Starwood Property Trust Inc., a real estate investment firm in Greenwich, Conn., and the $422.5 million debut of Emdeon Inc., a health care software developer based in Nashville.

Software is one industry that's drawing suitors. Piper Jaffray advised Minneapolis-based SoftBrands Inc. on its $80 million sale to Infor Global Solutions of Alpharetta, Ga., and Golden Gate Capital, a San Francisco-based private equity firm. Softbrands makes software for the U.S. military, hotels and manufacturers.

Craig-Hallum Capital Group advised MQSoftware Inc. in Minneapolis on its sale to BMC Software Inc. of Houston. The Minneapolis-based investment bank also helped Fair Isaac Corp. in Minneapolis sell a telecom-focused risk management business to Neural Technologies of Great Britain.

'Taking fire from all sides right now'

Investors, however, are shying away from medical devices, the lifeblood of Minnesota's high-tech economy, because of greater regulatory scrutiny and uncertainties surrounding health care legislation, Salveson said. As a result, several high-quality medical device firms are shying away from IPOs until the sector earns better valuations from Wall Street, he said.

The industry "is taking fire from all sides right now," Salveson said. "It's unnerving to investors. Unless the valuations improve, [medical device companies] don't want to dip their toes in the water."

Medical device companies that do go public are finding a chilly reception. AGA Medical Holdings Inc. of Plymouth, the first Minnesota company to go public in two years, raised $199.4 million from its IPO earlier this month, much lower than the $275 million it had previously estimated.

But Salveson says he's confident Wall Street will eventually reward the best managed medical companies.

"There probably has never been a crop of better performing companies in the private markets as there are today," he said. "When the clouds part, you are going to see one of the most robust environments for public financing."

Thomas Lee --612-673-7744

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