A123Systems’ IPO Gives Shareholders a Big Jolt

9/25/09Follow @wroush

[Corrected 9:05 a.m. 9/25/09, see below] In a performance reminiscent of the frothy days of the dot-com boom, stock in Watertown, MA-based lithium ion battery maker A123Systems (NASDAQ: AONE) soared more than 50 percent in its first day of trading yesterday. It’s been years since a New England technology firm burst out of the IPO gate so strongly, and Wall Street’s interest in the company—which hopes to supply batteries for many of the electric vehicles likely to come to market over the next several years—has significantly boosted the portfolios of the major venture investors, strategic investors, and executives who hold shares in the company, at least on paper.

The individual investor whose shares gained the most value yesterday is legendary Boston-area entrepreneur and philanthropist Gururaj “Desh” Deshpande, the founder of Sycamore Networks and the donor behind the Deshpande Center for Technological Innovation at MIT. Desphande owns 7.3 percent of A123Systems; at the IPO price of $13.50 per share yesterday, that stake was worth just over $95 million. By the end of the day, when the company’s stock price had climbed to $20.29, Deshpande’s shares were worth nearly $143 million. (See Table 1 below.)

A123Systems’ main venture backer, North Bridge Venture Partners of Waltham, MA, also fared well yesterday. With 9.3 percent of A123′s outstanding shares, the venture firm is the battery maker’s single largest shareholder. Its stake was worth just under $121 million at the offering price and had grown in value by $60 million by the end of the day. [Update: PE Hub has an interesting table today, using investment data from Thomson Reuters, estimating the share values for A123's six largest venture backers. The VC firms' (as yet unrealized) multiples, based on yesterday's closing price, vary from 3.03 to 7.23, according to Thomson's estimates; North Bridge's multiple comes in at 4.35.]

Overall, the company’s eight largest shareholders saw the value of their holdings increase by almost $270 million on Thursday [Updated and corrected: not $365 million as a previous version of this story reported due to a double-counting error in the math]. The company’s total market capitalization increased by $600 million over the course of the day, ending at $1.96 billion. Not bad for a company that has raised only about $352 million in private, dilutive investments. (A123Systems also benefited from $100 million in refundable tax credits from the state of Michigan, a $249 million Department of Energy grant this August, and about $250 million in other government grants and loans, leading PE Hub’s Deborah Gage to comment that “the biggest backers of A123Systems are taxpayers.”)

Here’s a list of A123Systems’ biggest shareholders, drawn from regulatory filings, and the amounts by which their stakes grew in value yesterday.

Table 1. A123Systems’ Eight Largest Shareholders and Their Stakes

Shareholder Name Shares Owned*
Percentage Owned Value At IPO Price Value at Closing Price
North Bridge Venture Partners 8,951,826 9.3% $120,850,000 $181,633,000
General Electric Co. 8,482,098 8.8% $114,508,000 $172,102,000
Gururaj Deshpande 7,040,681 7.3% $95,049,000 $142,855,000
Qualcomm Inc. 5,379,526 5.6% $72,624,000 $109,151,000
Motorola Inc. 4,844,914 5.0% $65,406,000 $98,303,000
Yet-Ming Chiang 1,774,074 1.8% $23,950,000 $35,996,000
Gilbert N. Riley, Jr. 1,506,674 1.6% $20,340,000 $30,570,000
David P. Vieau 1,425,240 1.5% $19,241,000 $28,918,000

* The “Shares Owned” figures refer to shares owned after the offering.

Source: A123 Systems Form S-1, page 124.

Of course, the gains reflected in the table above are on paper only—none of A123′s largest shareholders actually sold shares in the initial offering. But as part of the offering, several A123Systems principals did sell portions of their stakes in the company. Co-founder Yet-Ming Chiang, who developed the company’s battery technology in his laboratory at MIT, sold the most shares—a stake amounting to about $2.8 million at the IPO price of $13.50 per share. Here’s the list of selling shareholders identified in regulatory documents:

Table 2. Selling Shareholders in Yesterday’s IPO

Selling Shareholder Shares Offered Value at IPO Price
Yet-Ming Chiang (co-founder) 204,307 $2,758,000
David P. Vieau (president and CEO) 186,485 $2,518,000
Gilbert N. Riley, Jr. (co-founder, CTO, and VP of R&D) 181,471 $2,450,000
Ric Fulop (co-founder and VP of business development) 108,238 $1,461,000

Source: A123Systems Form S-1, page 125.

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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