Beacon Power's IPO twist
By Stephen Lucey
Redherring.com, November 17, 2000
Anyone familiar with the IPO market is well aware of the time-honored art of flipping shares obtained at the offering price and quickly harvesting returns in the aftermarket. And while retail investors have been victims, not beneficiaries, of this practice, Satcon Technology (Nasdaq: SATC) and Mechanical Technology (Nasdaq: MKTY) offer a diversified way to invest in Beacon Power (Nasdaq: BCON) ahead of its IPO.
But as shareholder lawsuits mount against Plug Power (proposed Nasdaq symbol: PLUG), in which Mechanical holds a 33 percent stake, will Beacon's parents' stock charts end up resembling the likes of Internet Capital Group and CMGI?
After a Salomon Smith Barney-led syndicate sliced terms of the Beacon placement to $6 to $8 per share, down from $11 to $13, the early returns aren't too promising. Satcon and Mechanical, which hold 25 percent and 9 percent stakes in Beacon, respectively, are off 14.5 percent and 7.1 percent to $16.25 and $6.13, again respectively.
Yet while the jury is still out on Plug Power, which itself was down 5.8 percent Thursday to $20.06 after it missed certain milestone agreements for its residential fuel-cell technology, some analysts have stepped up in support of the Beacon offering.
"There's no more solid a team [in flywheel technology] than Bill Stanton and David Eisenhaure," says Friedman Billings Ramsey analyst Maurice May of Beacon's chairman and president and Satcon's CEO, president, and chairman, respectively. For although Mr. Stanton and the team at Beacon are the ones producing the flywheels, and Satcon is more in the system management space, Mr. May says the men are both very knowledgeable on the technology, as their work together on flywheels dates back some 25 years to their MIT days.
So if investors aren't convinced that Beacon's flywheel technology -- which converts power off the electrical grid into kinetic energy, then back to electrical energy during a power failure -- will replace the current lead-acid battery energy backup systems of telecommunications carriers, then they might be more comfortable considering an investment in Albany, New York-based Mechanical -- which sits atop the pyramid through its investments in Plug and Satcon.
According to Mr. May, Mechanical is positioning itself as a vertical incubator for new-economy energy technologies. So an investment in Mechanical is effectively an investment in Plug Power, Satcon, Beacon, and whatever other new energy company grows up in its nest.
ARE THREE COMPANIES BETTER THAN ONE?
Yet while an investment in Mechanical may mitigate some of the risk inherent in these emerging energy technology companies, Beacon seems to be the most promising of the three. While Satcon has managed to climb back somewhat from its slide following the April shakeout, Plug Power remains weak as the company attempts to recover from its early optimistic earnings expectations and a slowdown in its timeline for getting its fuel cell product to the market, says Robert Winters, an analyst for Bear Stearns in New York. This says nothing of Plug's legal troubles as it faces a wave of class-action lawsuits filed by angry investors after it failed to meet certain production milestones under an agreement with General Electric. This outlook is in stark contrast to that of Beacon.
Mr. May remains optimistic about Beacon's prospects despite its current lack of manufacturing capacity. With funds from the IPO, Beacon plans to build a new manufacturing facility. At that time, the company will be able to fill existing commitments from Verizon and Bell Atlantic, which have already provided application requirements and testing specifications for field trials to Beacon. While this work has not created any agreement or sales, it has allowed Beacon to gain commitments for early 2001.
Demand for these new energy alternative systems is expected to increase over time. Beacon cites research from the Electric Power Institute estimating that electricity reliability problems cost U.S. companies some $50 billion annually. By targeting the telecommunications industry, Beacon hopes to capture a portion of the $4 billion spent by the sector in 1999 on power reliability products, according to the Skyline Marketing Group. With demand across all sectors expected to grow at approximately 30 percent for the next 15 years, Beacon could be well positioned if its flywheel technology gains traction among telecommunications carriers.
But again, that's really the unknown variable for investors looking at Beacon's IPO. "In this sector people have been willing to give companies the benefit of the doubt," notes one investment banker familiar with the deal. "In this market, that's not the case."
redherring.com
Jim |
