A lockup period that prevented company insiders from selling their holdings expires today, giving employees and others a chance to cash in on a 170 percent surge in the stock since its IPO.
That's no small feat in today's market: Only eight companies out of 29 that launched initial public offerings in February are trading above their IPO price.
And among the companies with lockup periods expiring this month, only shares of WebMethods and DigitalThink are up more than 100 percent from their initial prices. DigitalThink's shares are trading around $38, compared with an IPO price of $14.
Insiders such as company executives, directors and employees, as well as early investors and corporate investors, typically are prevented from selling their pre-IPO shares until 180 days after the offering.
WebMethods, which assists companies in setting up business-to-business online exchanges, was off to a strong start in its debut. The shares soared more than sixfold on their first day of trading to close at $212.63, compared with an IPO price of $35. The shares closed today at $94.63.
Although the stock is off sharply from its high of $336.25, it has held up better than many other new issues that debuted in February. A severe market correction in April knocked the wind out of many formerly high-flying young companies, most of which have not recovered.
While WebMethods' shares bucked the one trend, they have followed another. Investors typically get skittish in the two weeks preceding a lockup expiration, fearing that a flood of shares will hit the market and put pressure on the stock.
In WebMethods' case, the shares have fallen about 50 percent in the past three weeks.
At some companies, insiders are hesitant to sell shares too early, fearing it will send the wrong message to investors--particularly if the shares are already under pressure.
"With the run-up in the price since its offering, I expect officers and directors to be price sensitive. They will probably feel more comfortable to sell at this price from an image standpoint, rather than if the stock was trading near its IPO price," said Paul Elliott, an analyst with First Call/Thomson Financial.
He added that insiders typically sell up to 15 percent of their holdings once the lockup expires.
Venture capitalists, however, are more likely to sell huge blocks. These investors typically get in at a price far below the IPO offering, so they tend to have little hesitancy in selling at prices close to or even below the IPO price, Elliott said.
WebMethods' venture investors include the Mayfield Fund, which holds 5.6 million shares, and FBR Technology Venture Partners, which has 2.7 million shares.