A123's smash-hit IPO could herald more green debuts

SAN FRANCISCO Thu Sep 24, 2009 9:45pm EDT

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SAN FRANCISCO (Reuters) - A 50 percent leap in the shares of lithium-ion battery maker A123 Systems Inc on their first day of trading looks likely to jumpstart the market for clean-tech share offerings.

The Watertown, Mass.-based A123 Systems is now worth over $1.9 billion, a striking valuation for a company that has yet to make a profit and still needs large-scale commercialization.

Industry executives and experts said A123's success shows investors have an appetite for green technology companies that lose money, but have tremendous potential.

So the stock's first day jump, which is the second-best performance for a debut stock in 2009, should encourage more venture capital-backed clean technology companies to go public, they added.

"This is an interesting time for the market because there are several (clean-tech) companies that have been growing very nicely," said Faysal Sohail, managing director of venture fund CMEA Capital, which is an investor in A123.

Sohail declined to comment specifically on A123, but said the whole environment is creating opportunities for clean-tech companies and expects 2010 to be a busy year for green IPOs.

"They are real companies with substantial revenue and growing at a very fast clip," he said.

CMEA Capital also backs companies such as Silicon Valley solar manufacturer Solyndra and biofuel company Codexis, which many see as likely candidates for the IPO market.

Other green companies deemed ripe for an IPO include smart grid network company Silver Spring Networks, electric carmaker Tesla Motors and solar thermal company BrightSource Energy.

Rival lithium-ion battery maker Ener1 Inc also cheered A123's stock performance, which shows how much value there is in the emerging sector.

"It's great for the space. They have done a good job of getting the market excited," Ener1 Chief Executive Charles Gassenheimer told Reuters.

Ener1 went public in 2003, but used a reverse merger with a public shell corporation to do so.

Gassenheimer said the warm reception of the IPO would encourage other clean-tech companies to tap the public markets.

"Any time you have an IPO trade up as much as 50 percent, that means investor receptivity has returned," he said. "I think you will see a lot more IPOs on the back of this."

HIGH GROWTH SECTORS

A123, founded by scientists linked to the Massachusetts Institute of Technology (MIT), develops batteries for electric vehicles, plug-in hybrids and works with carmakers such as BMW, Chrysler and General Motors Co.

Electric vehicles and batteries are considered markets that have immense potential for growth.

The automotive market for lithium-ion batteries, mostly found in mobile phones and computer laptops, is projected to be $32 million in 2009, but is expected to skyrocket to $22 billion in 2015, according to A123's prospectus.

"That's compelling," said Matt Therian, an analyst with Renaissance Capital, referring to the market potential. "We have seen a lot of large profitable companies go public. But a smaller one with a little more risky profile ... I think it bodes well for the health of the IPO market."

Looking forward, Therian expected plenty of the larger, cash-generating, private equity portfolio companies would go public in 2010.

"But on their heels, we could also see another wave of your more traditional growth companies," he added.

For now, A123 co-founder Yet-Ming Chiang, a professor of ceramics at MIT's department of materials science and engineering, is happy but understands the company still needs to deliver.

"It's a scientist's and engineer's dream to see something from the lab make it to commercial technology that has an impact," Chiang said. "Even though this is a significant event, there is still a lot of work to be done and tomorrow we all get back to work."

(Reporting by Poornima Gupta; additional reporting by Scott Malone in Boston; editing by Andre Grenon)

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