The Upside to Investors of Fitbit (FIT) Pre-Lockup Secondary
Leerink Partners analyst, Stephen Wardell, is bucking the trend and disagreeing with the widely held belief that the reason for the Fitbit (NYSE: FIT) secondary, due to take place before the lockup expiration, is mostly a way for insiders to sell shares Importantly, Leerink is not participating in the underwriting syndicate.
On December 15, FIT’s lockup is due to expire allowing an additional 165m shares available to trade freely. If FIT founders Park and Friedman (or other insiders) elect to participate in this offering, they could sell not more than 10% of their holdings and they would agree to refrain from selling further FIT shares for 90 days. Leerink views this structure as being very aligned with FIT’s outside shareholders.
As a result of negotiations around the secondary offering, this week 2.3m FIT shares owned by employees and consultants will be released from lockup. The proposed secondary offering releases another 14m to 17m (with overallotment) already-issued shares. Combined with the planned follow-on offering of 7m primary shares, FIT’s share float is increased by about 62%. Employees who participate in the Follow-on can only sell a maximum of 10% of their holdings with the remaining shares locked up for an additional 90 days ending in February.
Assuming a successful offering, the number of FIT shares emerging from lockup that remain in insiders’ and employees' hands remains in the 146m area.
The 7m primary shares to be offered provide additional working capital and dilution that’s modest in our view. Management cites a need for additional capital from the follow-on offering for managing working capital during growth and having a cash cushion.
The firm maintained an Outperform rating and price target of $81 on FIT.
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Shares of Fitbit closed at $37.31 yesterday.