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The hopes and aspirations of an entire industry are riding on the back of A123Systems Inc. as it takes its first step into the public markets next week.
After a year of waiting as the economy and equity markets collapsed, the Watertown-based lithium-ion battery maker hopes to raise some $225 million through an IPO the week of Sept. 21. The event, the first venture-backed cleantech company to go public this year, will be closely watched by peer companies and industry insiders, many of whom consider the stock sale a bellwether for cleantech investments.
The news comes just a month after A123 secured $249 million in U.S. Department of Energy funding to build an electric-vehicle battery plant in Michigan and five months after Chrysler Group LLC chose it to power the automaker’s line of hybrid electric cars.
“As a CEO of a company that one day hopes to IPO, I think it’s a great sign that the IPO market is back. Ten months or so ago, people thought there would be no IPOs,” said Mitch Tyson, CEO of Wilmington-based industrial-efficiency product company Advanced Electron Beams. “It re-validates the market. If there’s a great technology with a great story, investors might be interested.”
A123’s arrival comes at a key time for the still-emerging local cleantech industry, which has relatively few, successful public companies when compared with other industry clusters.
“It’s a very, very big deal for the region. The IPO will deliver to the company the capital required to expand and create jobs, and within the New England cleantech cluster, it simply represents another flagship company in the area cluster,” said Nick d’Arbeloff, president of the New England Clean Technology Council.
While the market has generally been kind to IPOs this year — the average 2009 IPO stock is up 27 percent year to date, compared with an S&P 500 return of 16.5 percent— analysts consider A123 a real test as to whether investors are ready for the risks associated with earlier-stage companies.
The company does bring significant losses to the table. While A123’s revenue grew to $68.5 million in 2008, from $34.3 million in 2006, its net loss widened to $80.4 million in 2008 from $15.8 million in 2006.
A123 continued on that track during the first half of this year, with revenue more than doubling to $42.9 million over the same period last year and losses growing to $41.2 million, compared with $32.9 million.
“All eyes are on A123 because it’s not in the mold of the ones that have gone before — more developed companies with strong revenues and earnings. Rather, it is a company that is being helped by government spending,” said Kathy Smith, principal at Renaissance Capital in Greenwich, Conn.
Private investors rushed to back renewable energy technology companies over the past decade but have shown few exits to date. Some see A123’s emergence as evidence that, at least in some industries and some technologies, strong returns are there for the taking.
“There’s been a perceptible shift that’s happening in the investor community — a year ago, six months ago, valuations were terrible. Now, while the metrics are different for different segments, at least a certain segment of the investment community is ready to invest in a certain type of company,” said Thomas Burton, chairman of the cleantech practice at Mintz Levin Cohn Ferris Glovsky and Popeo PC.
If A123 performs well after its IPO, it may entice others to dip their toes in the public waters, or at least use that as a bargaining chip to draw higher valuations from investors or acquirers, Burton said. Furthermore, if the company’s investors — which include Waltham’s North Bridge Venture Partners and Braemar Energy Ventures in Boston — do well, the proceeds could be used to invest in new companies, unclogging what many cleantech players say is a backed-up startup pipeline.
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