Recently the IPO market has shown some signs of life, with more and more companies looking to break into the public markets. New, more relaxed regulations for smaller companies and a stock market that has been steadily recovering after the 2008 recession have made it easier for businesses to make the transition from a private company to a public one. When a company initially sells its shares there are a lot of stipulations in the offering designed to help preserve the share price. One of these stipulations is the "lockup" period, which is usually 90, 180 or 360 days after the IPO. This is the amount of time insiders and pre-IPO investors have to wait before they sell their shares on the open market. This sudden deluge of supply can sometimes cause the share price to fall dramatically and savvy investors can make money from this decline.
The first company I'm going to highlight is Angie's List (ANGI). This is a website which provides a platform for users to rate service technicians, contractors and builders for its subscribers. The company priced 8.7 million shares on November 17th of last year at $13 per share. After the IPO, the stock traded down to $10.77 a share and set a new high of $19.82 on March 29th, 2012. Since its March highs it has traded down and on May 10th announced the release of a lock-up agreement with BofA Merrill Lynch (BAC), its chief bookrunner, freeing up 472,666 shares. The company and a selling stockholder also filed to sell up to $10 million worth of stock in a secondary offering. The 180 day lockup period for its IPO shares ends on May 15th and after that date 46,747,368 shares will become available for trading.
The next company with a lockup period expiring on May 15th is Delphi Automotive PLC (DLPH). Delphi is a leading automotive parts and components manufacturer. The company went public last November at $22 per share. It sold 24 million shares in the offering and afterwards had 328 million shares outstanding. Delphi filed on May 1st to allow its pre-IPO shareholders to sell their shares after the lockup period. The stock had been strong until the news of the impending sales by insiders. It has since traded down more than 8% below its April highs. The 180 day lockup is the final lockup (a small number of shares were freed up after 90 days) and up to 304 million shares that were previously restricted will be available for trading on May 15th,2012.
Last, but not least, is Manning & Napier, Inc. (MN). This company is an independent investment management firm. It sold 12.5 million shares at $12 per share on November 18th, 2011. The stock has been strong since its debut on the public markets, closing near its all time highs on May 3rd, just after beating earnings estimates by 0.02 cents. Since then the stock has come down about 7% and could lose another few percentage points if more shares get dumped on the market. This company is quite a bit more complicated, as the 12.5 million shares is the total amount it had outstanding after the offering. MN has an exchange agreement with M&N Group Holdings, MNCC and other holders of units of Manning & Napier, Inc., that allows for those units to be exchanged for up to 76.4 million shares of Class A common stock. The exchanged stock will be bound by the 180 day lockup agreement which expires on May 16th, 2012.
Many of the shareholders that are bound by these lockup agreements also must file with the SEC under Rule 144 in order to sell the restricted shares. Two of the three companies mentioned in this article have shareholders which have already filed. All three of these companies have volume restrictions placed on sales of the stock. For example, Delphi's restricted shareholders cannot sell more than 1% of the ordinary shares outstanding and can not sell more than the average weekly trading volume during the four calendar weeks prior to filing Form 144. Obviously, many factors go in to determining a stock's share price, but not only does lockup expiration have the ability to significantly dilute a stock's value on the open market, it is also a window into insider confidence in the company.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
