How to think about stocks with chunky private ownership?
I've been looking at some growth stocks and frequently see that Growth/VC firms own a significant chunk of shares outstanding (in most cases because they were pre-IPO investors and and are still holding).
How do you think about their ownership affecting the stock's performance down the road? I assume most of these firms plan to exit within a few years of IPO; if ~20% of shares outstanding will be dumped in the next 1-3 years, is this a material threat to the stock price? Is this a relevant concern to have, considering they're probably employing strategies to limit slippage?
Large corporate events definitely become hairier or less appealing to the broader market as they go through their lifecycle as a public company, one sticky insider shareholder dynamic to dig into as a case study would be Pirelli with its convoluted Chinese and Italian insider shareholder registry
Something some HFs focus on are indeed secondary offerings. We do plenty of those.
VCs/PE will exit at a certain point. When they have 50% ownership (e.g. ALE PW) they make orderly secondary sales at a discount (two offerings this year at 7% in the example of ALE PW). You know they keep on selling for years, but if the company performs well, not a big deal except for the fact you'll have sales here and there.
Problem is when they don't communicate to market and arrive with a 30%-stake secondary sale when the float is as thin as 10% of outstanding. Fantastic increase of liquidity, but who's gonna buy?
Having founders in the business isn't bad as long as they don't retain all the voting power and float isn't tiny due to their ownership.
Large PEs are usually a problem when you have IPOs as they tend to seek high multiples and the IPO's success is constantly at risk (e.g. look at 6523 JP when KKR decided to list the business again).
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