Forgent, Neos Launch 35 Million-Share Sale as Power Equipment Maker's Stock Doubles Since IPO

Q: Forgent's financials are soaring, so why does this sale provide the company with no new capital?

Forgent is not raising fresh operating capital because this deal is structured mainly as a secondary sale for its private-equity owner, Neos Partners, not as a true cash infusion for the company. Most of the roughly 35 million shares are being sold by Neos affiliates, and Forgent explicitly will receive no proceeds from those shares. Even the shares sold by Forgent do not leave cash inside the business: the company said its portion of the proceeds will be used to redeem equity interests in its operating partnership from Neos affiliates. In effect, that money is passed through to Neos as well. So while Forgent’s financial performance has surged and its stock has doubled since the IPO, this offering is primarily a monetization event for the sponsor. It gives Neos liquidity and reduces its stake, but it does not add net new funds to Forgent’s balance sheet for expansion, hiring or debt reduction. That is why the company’s strong results and the stock sale are not contradictory. Strong financials can create the right market window for an existing owner to sell shares at attractive prices. But unless the company keeps the proceeds from newly issued shares, the transaction does not function as a capital raise. Here, the structure ensures Neos captures the net proceeds from the overall sale.

3 articles · Updated · Bloomberg · Jun 29

About 35 million Forgent shares are being marketed in the company’s third stock sale since its February IPO, with pricing scheduled for late Wednesday.
Neos affiliates are selling 23.3 million shares and Forgent is selling 11.7 million, according to people familiar with the deal.
Forgent said it will use its proceeds to redeem equity interests in an operating partnership from Neos affiliates, leaving Neos to receive all net proceeds from the transaction.
The sale comes after Forgent’s stock has doubled since the IPO, giving the power distribution equipment maker and its private equity backer a chance to tap the rally.