MARKET TIMING
With a handful of billion-dollar debuts in June and July, the IPO gravy train is back on track. But before you shell out for today's hot issue, take a look at locked shares held by insiders and backers that can't be sold until the lockup expires.Both Unlockdates.com and IPOlockup.com feature lockup expiration calendars (each lists companies the other doesn't, so you need to check both), and Unlockdates lets you search for tickers and set up email alerts.
Locked shares can influence an IPO's opening-day pop, and the expiration can trigger a nasty drop. "It's a supply-and-demand issue," says Brad Alford, the founder of IPOlockup.
Consider two comparable IPOs from April 7, Saba Software (SABA) and Lexicon Genetics (LEXG). Saba, which floated less than 10 percent of its shares, doubled in value immediately after the offering. Lexicon, which put more than 20 percent on the block, struggled to maintain its initial price.
But the tables could turn when their lockups expire - Saba on October 3, Lexicon the following day. "An initial float of 10 percent or less is a red flag," says Paul Elliot, an analyst at First Call/Thompson Financial. That's because the remaining shares might flood the market as pre-IPO shareholders divest. If that happens, it might take some time for the price to recover.
How long? You can estimate by dividing the number of locked shares by the stock's average daily volume. Unlockdates reports this number as the "unlock ratio"; IPOlockup calls it "trading days to absorb new shares" - not as catchy, but more accurate.
Of course, insiders don't have to sell any of their shares. Management and firms with a strategic interest in the company are less likely than VCs to dump their stakes. If 90 percent or more of the shares are locked up, and VCs hold a large portion, the expiration can be especially dicey.
Indeed, VCs hold more than 40 percent of Saba shares eligible for release, according to SEC filings listed on Edgar Online's IPO Express. In contrast, Lexicon's directors and executives own a healthy 68 percent of its shares, and Baylor College of Medicine, which has close ties to the company, holds another 8 percent. The extra measure of loyalty can add up to dollars for investors when expiration day arrives.
- Andrew Marks (amarks@nyc.rr.com)
Unlockdates.com: www.unlockdates.com.
IPOlockup.com: www.ipolockup.com.
IPO Express: www.edgar-online.com/ipoexpress.
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