Battery Maker A123's Public Offering Takes Off

The story of Massachusetts-based battery maker A123 Systems (supplier to Chrysler's on-hold ENVI division of electric cars, to BMW, GM and Delphi) is turning into a fairy tale, one with dark moments but a happy ending. The company, founded by scientists linked to MIT, is one of the leading players in lithium-ion vehicle batteries.

A123 had intended to launch its IPO in August of 2008, but the economy's crash soon after made that impossible. But the company did not founder. Instead, A123 found private investors including $30 million from General Electric last fall, and another $15 million last spring (GE has 11 percent, Quallcomm 7.6 percent and Motorola 6.9 percent). Venture capital (from North Bridge, Sequoia and others) added another $15 million.

I have previously written about how many battery and electric car startups (Bright Automotive is a great example) are having trouble finding venture capital, which forces them to rely unduly on hopes of Department of Energy grants. But the A123 story is a positive sign that the situation is turning around.

A123 did do well with government grants, fielding $249 million from the Department of Energy and $10 million from the state of Michigan, both connected to plans for a lithium-ion battery plant in Michigan. At the time the company first filed to go public, it had raised $160 million.

It's not like A123 is significantly profitable. Its transportation battery business is dominant, but it also makes equipment for cordless power tools sold under the Black and Decker name, and for Gillette. In the first six months of 2009, A123 reported $43 million in revenues, and losses of almost that much--$40 million. But A123 finally launched its IPO September 24 (underwritten in part by Morgan Stanley and Goldman Sachs), originally intending to raise $300 million (up from $201.8 million) by selling 27.5 million shares on the NASDAQ (trading as AONE). The company upped its estimated price per share just before the offering by 23 percent from $9 to $9.50 per share to $10 to $11.50, or a new value of $380.4 million. This was, said the Motley Fool, "priced at the high end of expectations." But A123 sold 28.1 million shares, 9.3 percent more than it had expected.

Alarm:Clock opined September 22, "We think investors will kick themselves if they miss out on the gravy train here." That advice proved prescient. A123's IPO soared more than 50 percent at launch last Thursday, the second-best stock performance of 2009 (though it dropped three points the next day). At presstime, A123 stock was selling for more than $18, and the company was worth more than $1.9 billion, which Reuters described as "a striking valuation for a company that has yet to make a profit and still needs large-scale commercialization."

I have long thought that battery car startups (and battery companies) are this decade's equivalent of Silicon Valley in the '90s. And, in fact, many of the startups are actually in Silicon Valley, headed by former computer moguls.