First Advantage saw its stock price fall roughly 8% on Tuesday morning after the company disclosed that a major shareholder is pursuing a sizable secondary sale of common stock.
According to the company statement, certain investment funds managed by Silver Lake Group and affiliated entities plan to offer 12,500,000 shares of First Advantage common stock in an underwritten secondary offering. Bloomberg reported the offering price range as $22.20 to $23.59, and the shares had closed at $23.59 on Monday.
First Advantage itself will not be selling any shares in the transaction and will not receive any of the proceeds. The entirety of the sale proceeds will go to the selling stockholder, per the company statement.
Offering mechanics and regulatory filing
The transaction is being executed under a registration statement filed with the U.S. Securities and Exchange Commission. J.P. Morgan Securities LLC is acting as the underwriter for the offering.
In connection with the deal, the selling stockholder agreed to a 30-day lock-up with the underwriter. The selling stockholder has indicated it will distribute up to 4,200,000 of the offered shares to its limited partners on or about the closing date of the offering; those distributed shares will not be subject to the 30-day lock-up.
The company statement also notes that none of First Advantage's directors or officers will be subject to any lock-up with the underwriter.
Market reaction and context
The announcement from the selling shareholder coincided with the early morning price drop. Market participants often react to large secondary offerings because of the increase in available float and the potential for additional shares to come to market, and in this case the selling stockholder will receive all proceeds rather than the company.
What we know and what remains unchanged
- 12,500,000 shares are being offered by certain Silver Lake funds and affiliates.
- Bloomberg reported the offering price range at $22.20 to $23.59; shares closed Monday at $23.59.
- First Advantage will not sell shares and will not receive proceeds; the selling stockholder will receive all proceeds.
- The offering is being conducted pursuant to a registration statement filed with the SEC, with J.P. Morgan Securities LLC as underwriter.
- The selling stockholder entered into a 30-day lock-up with the underwriter, and plans to distribute up to 4,200,000 shares to limited partners on or about the closing date that will not be subject to the lock-up. Directors and officers of First Advantage are not subject to any lock-up.
The information released is limited to the terms of the offering and the lock-up arrangements described above.