Escrow Watch: 8 small caps loosen the apron strings
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Escrow Watch is Stockhead’s fortnightly recap of the small cap companies releasing shares that have been locked away in escrow.
Escrow refers to shares that are held by early investors or directors, who are restrained from selling them for a year or two.
The release of escrowed shares can have a big impact on a stock’s price. If the holders choose to take up their right to sell – the shares you own can fall.
Coming up, eight small caps are set to release over 191 million shares between them.
OptiComm (ASX:OPC) listed in August into a sector that, on the ASX, has had a very mixed performance over the last 12 months.
Large cap Megaport (ASX:MP1) has gone from strength to strength but the 13-odd small and mid caps in the telecommunications sector have struggled to move their share prices upwards.
OptiComm, an infrastructure play installing fibre-based internet and phone lines, hasn’t done too badly in terms of share price, but is at risk of multiple escrow releases over the coming years.
Existing shareholders retained approximately 79.62 per cent of the shares in the company with promises to escrow their stock, some voluntarily, for six months or two years.
The first six month escrow is up at the end of February, when 32 per cent of the stock will be released.
However, the only very large holding not owned by directors sits with AFL Telecommunications, which owns 11 per cent, according to the prospectus.
Other existing shareholders have stakes below the 5 per cent substantial holder threshold.
ReadyTech (ASX:RDY), which makes people management software for schools, is another IPO escrow situation.
It was spun out of a private equity fund called Pemba, which kept 42 per cent of the company.
Existing shareholders and management kept another 17 per cent of the company.
Regular existing shareholders were escrowed until after the 2019 half-year results, due out on February 20.
Pemba, the CEO and the CFO are escrowed until the 2020 half-year results are issued.
While these releases may impact on the companies’ share prices, they are likely to also free up liquidity as well.
With so much stock tied up in escrow, it’s difficult to get the share price to move much in either direction as the volume to buy is simply not there.