Just five more days. And on the sixth day, officers, directors, employees and early investors in A123Systems holding more than 71 million shares of common stock in the battery maker will be free to cash out. While certain volume restrictions can still apply under federal securities law, Monday marks the end of what’s called a “lock-up period,” lasting 180 days from A123’s $371 million initial public offering.
The point of lock-up agreements like those that underwriters secured with A123 insiders ahead of the company’s September IPO is to prevent a company’s stock from gushing too quickly onto the market. Too much stock unloaded in a short period could put a damper on the stock price in early trading.
A123 explained the worst-case scenario in the risk section of its prospectus last fall, writing that when its lock-up agreements with shareholders expire, “A significant portion of our total outstanding shares may be sold into the public market…which could cause the market price of our common stock to drop significantly, even if our business is doing well.”
A123 notes that shares don’t actually have to be sold en masse to have this effect. Rather, the simple, “market perception that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock.”
The battery maker’s successful IPO last fall boosted its cachet and signaled a go-ahead for its ambitious manufacturing plans. It also has helped to renew other cleantech companies’ hope that the public markets are once again open to them as a source of funding. After a much-lamented drought of cleantech IPOs, the industry greeted A123’s successful IPO as a sign that investor appetite could be back.
Similarly, how well A123’s stock performs after Monday’s milestone, and how much insiders decide to unload in coming weeks, will offer a signpost for the industry. While A123 has a potentially bountiful future, investors have proven impatient when it comes to revenue and profits, which aren’t expected to ramp up until after 2012. The stock has been up and down over the past several months. By afternoon on Tuesday A123’s stock had dropped to $15.50, off of former highs above $20.
A123’s investors include General Electric, Procter & Gamble, Motorola, Qualcomm, North Bridge Venture Partners, Sequoia Capital, CMEA Ventures, FA Technology Ventures, OnPoint and the Massachusetts Institute of Technology. Check out our chart showing the company’s major shareholders and how much they own.