ALTER's Vince Pérez on its 100% primary IPO
Today on Inside the Boardroom, my series where I try to cut through the corporate jargon and get to the heart of the matter by asking direct questions to top executives about the real factors behind their business decisions, we have Vince Pérez, Alternergy's founder and Chairman, to talk about the thinking behind the unusual decision to go forward with a 100% primary IPO.
NOTE: Some quick background might be in order for those that are not familiar with primary shares, and why it might be interesting/unusual for an IPO to be made up entirely of those shares.
- When an IPO is sold to the public, the shares can be either primary (new, issued by the company going public) or secondary (previously-owned).
- If the shares are secondary, the money raised by selling the shares goes to the person that previously owned the shares, not to the company doing the IPO.
- If the shares are primary, the money goes directly to the company doing the IPO, which is cash that company can use to execute its prospectus plan.
The following is a real back-and-forth exchange between Vince Pérez (VP) and me (Merkado Barkada/MB) that we conducted via email in early April.
Inside the Boardroom
WITH: Vince Pérez of Alternergy [ALTER]
RE: 100% primary IPO
- Merkado Barkada (MB): Ok Vince, before we talk about Alternergy’s all-primary IPO, I just want to congratulate you on your successful IPO, and on breaking the seal for 2023’s crop of IPOs. It probably wasn’t easy being the first to go during a period of so much financial uncertainty!
- Vince Pérez (VP): Thank you Merkado Barkada. Indeed, we felt like we were swimming against a rising tide of noisy news of volatile financial events outside the Philippines. Glad we managed to push through with our IPO due to keen investor interest in renewables. Once again Alternergy is a pioneer – this time in being the first IPO for 2023!
- MB: Getting right to the point, the thing that stood out about your IPO was that it was 100% primary. Even the over-allotment option was funded through primary shares, which almost never happens. What thinking was behind the decision to alter ALTER’s original IPO plan and make the IPO 100% primary?
- VP: The answer is simple – what message are we sending if we have a secondary sale portion? And we felt that a tranche of secondary shares sends a misleading perception that the founders are partially exiting from their ownership. No – we are here for the long term. The decision to use primary shares for the over-allotment instead of secondary shares, even though it has the effect of partial dilution to existing shareholders, is to send a strong message that ALTER wishes to grow.
- MB: Did the conversion of the over-allotment to primary change anything about the overall stance of the offer?
- VP: If we do the math, the net proceeds of the final offer would have been the same net proceeds to the company as the earlier offer structure, except we merely removed the secondary portion of the earlier offer structure. When we explained this to our institutional investors, they understood and welcomed the change in offer structure.
- MB: Considering the recent IPOs of SPNEC, CREIT, and ASLAG, the possible near-future IPOs of Citicore Renewable Energy and Prime Infrastructure Capital, and the continued domestic frenzy to build out renewable energy infrastructure from the typical power players, does ALTER have any plans to raise additional capital to further boost ALTER’s growth?
- VP: Our intention is not to immediately do a second equity offering, but use the primary offering as the cornerstone or foundation for other capital markets offering, primarily in terms of corporate debt, green bond, or possible redeemable preferred shares, within manageable debt equity ratios, before we consider a follow-on equity offering. We had prepared a very detailed capital funding plan for the next five years before we embarked on the IPO. Literally the evening of the IPO, we were already speaking with prospective bankers for our next capital markets transaction. We intended our IPO to be the cornerstone to grow our capital structure, regardless of what form of capital instrument we may issue in the future, to fund our growth.
- MB: Ok, one last question, and this one is for the Twitter crowd. I think you know where I’m going with this one. Did your team know about the #ALTER hashtag when the ticker symbol was being made? If it was known, how was the discovery made, and were there any talks internally to change the ticker because of the overlap with the hashtag, or did you just lean into it despite the overlap because the ticker symbol is just too good to pass up?
- VP: Funny you asked this question. Yes, we were fully aware of the confusing #ALTER hashtag and that is why all our announcements referred to $ALTER, and not #ALTER. The Ticker symbol ALTER is apropos to our tagline of “harnessing energy, altering lives”, as well as the intro to our video: “when we founded Alternergy, we wanted to ALTER the landscape with clean energy”.
- MB: Well met, Vince! Thanks for taking the time to fill us in about ALTER’s all-primary IPO, and what might be coming next.
- VP: We look forward to keeping in touch with you, as we have a lot on our plate, as we roll out our project pipeline of our triple-play renewable portfolio.
MB BOTTOM-LINE
As an IPO junky, the primary/secondary split is one of a handful of major "signals" that I use to evaluate a potential IPO. Almost every IPO to date has included a little tranche of secondary shares (usually tucked in as the over-allotment option), so when ALTER changed its over-allotment option from secondary to primary, that really caught my attention. A 100% primary IPO is a rare thing!
I can't speak for the future of ALTER, but all else being equal, I'd rather invest in an opportunity where all of my money goes to the company I'm buying a stake in, and where that company uses my money directly to grow future revenue streams. I get that sometimes owners and investors use IPOs as a liquidity event to cash-out, and I get that sometimes paying down debt is great for the bottom-line, but when I'm thinking about investing in an IPO, I'm not thinking about how I respect an owner's interest in filling his or her account with my money, or how responsible it might be to squeeze marginal gains in profitability from refinancing debt. I get excited about getting in on the ground floor of something new that is poised to grow.
That's the primary/secondary split thing to me: a signal of a company's intent to grow. And I think that Vince's comments on the primary shares issue align with this signal. There are thousands of variables over the coming years that will conspire to help or hurt Alternergy's attempt to execute on their vision, but I appreciate the message that it sends about Alternergy's future value as a function of that plan when Vince and his team refuse to sell secondary shares into the IPO.
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Merkado Barkada's opinions are provided for informational purposes only, and should not be considered a recommendation to buy or sell any particular stock. These daily articles are not updated with new information, so each investor must do his or her own due diligence before trading, as the facts and figures in each particular article may have changed.
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