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Two local companies with “green” underpinnings may encounter challenges in their bids to go public, due to a lack of profits at the companies and an IPO market that has become more selective.
Zipcar Inc., which filed its intentions to go public on June 1, and First Wind Holdings Inc., which waited nearly two years for the right time for its IPO, both have capital-intensive business models and have taken on a heavy debt load. The companies haven’t seen profit and provided no assurances in regulatory filings on when that could happen.
Though investors are still interested in growth companies such as Zipcar and First Wind, investors are “going to be selective about a growth company that doesn’t have earnings,” said Kathy Smith, principal at Renaissance Capital in Greenwich, Conn.
Market volatility is a main reason. IPOs in Renaissance’s performance index have seen negative returns of 5.9 percent since Jan. 1 — though slightly better than the negative returns of 6.5 percent from the S&P 500.
Both Zipcar and First Wind have characterized their debt loads as “substantial” in filings with the U.S. Securities and Exchange Commission — citing the debt as among the chief risk factors in investing in their companies.
Zipcar, a Cambridge-based car-sharing firm, had $29.9 million in debt as of March 31, and its wholly owned subsidiary, ZVF, was expected to borrow up to $70 million to purchase vehicles that would be leased to Zipcar.
Since being founded in 2000, the company has seen net losses each year and accumulated a total deficit of $56.4 million, the company reported. Zipcar leaders wrote in their SEC filing that they don’t expect a profit this year and “do not know if our business operations will become profitable or if we will continue to incur net losses in 2011 and beyond.”
The company is seeking a $75 million IPO, with some of the proceeds going to help pay down its debt.
Zipcar’s main job will be to find investors who “believe that vehicle sharing is going to be an important part of transportation in the 21st century,” said Thomas Burton, chairman of the cleantech practice at Mintz Levin Cohn Ferris Glovsky and Popeo in Boston. Mintz Levin is not involved with Zipcar’s IPO plans.
Zipcar has not set a date or expected price range of shares for the IPO. The company declined to comment.
Meanwhile, at First Wind, a Boston-based wind power developer, the company had outstanding debts of approximately $516.4 million as of March 31.
Founded in 1995 as UPC Wind, the company had accumulated losses of approximately $191.7 million as of March 31, according to the SEC filing.
The company filed for an IPO in July 2008 and has declined to comment on its plans.
Investors understand that wind developers must take on a lot of debt to build their expensive projects, said Connie Wright, a managing director at Accounting Management Solutions Inc. in Waltham.
But investors will likely have more questions about whether the company can become profitable, she said.
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