High on the list of Top Investor Annoyances is share dilution, which is why stocks of companies that announce new share issues often get punished by the market. While Shoals Technologies Group (NASDAQ:SHLS) purports the offering was all secondary, investors were still spooked. Shares closed the day down by slightly more than 14%.
On Monday, after market close (which is often when such things are announced), Shoals said that nearly 13.4 million shares of its Class A common stock are to be sold in a public offering. Of that total, just under 8.4 million shares are to be offered by the company itself, with the remainder being divested by investor Oaktree Capital Management and Shoals’ general counsel Mehgan Peetz.
The company is also granting the issue’s underwriters a 30-day option to buy up to slightly more than 2 million additional shares.
It said it would use the proceeds of the shares it is selling to “purchase equity interests in its operating subsidiary from certain holders,” including those of its founder and several top managers.
With the underwriter options, Shoals is potentially floating over 10.4 million shares. According to data from Yahoo! Finance, at present the company’s outstanding share count is just under 93.6 million.
While there are certainly scarier issues out there, investors might be concerned that this one is being used for greater equity control rather than growing the business. Also, Shoals is going to the well quite early in its life as a publicly traded entity — the company had its IPO in February.
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