Why First Advantage Stock Tumbled on Tuesday
Key Points
These are to be sold in a public offering, with a smaller stake to be distributed to the seller's limited partners.
The public offering price commands a less than 5% premium.
First Advantage's (NASDAQ: FA) majority shareholder is going into the minority, and investors didn't seem too pleased by this development. The employment verification services provider announced a significant stock sale by that investor, and market players reacted by trading First Advantage's equity down more than 10% on Tuesday.
Coming to market soon
That majority shareholder is tech-focused private equity firm Silver Lake Group, which is selling 12.5 million First Advantage shares in a public secondary stock offering priced at $22.20 per share. Additionally, Silver Lake will distribute up to 4.2 million shares to its limited partners on or about the offering date, expected tomorrow (Wednesday, Aug. 12).
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First Advantage stressed that it will not earn any proceeds from the sale, as it is not the offering party. The offering price is nearly 6% below the stock's level at market close on Monday.
At the end of July, Silver Lake held nearly 89.6 million shares of First Advantage through an affiliate. This shakes out to slightly over 52% stake in the company; assuming it unloads all of its shares in the public and limited-partner offerings, that holding would drop to 42%.
Selling near a high
Whenever a large investor divests a majority stake in a company, investors worry that the selling entity has lost confidence in the viability of its investment. In this case, that's compounded by the discount of the secondary issue's sale price.
Personally, I read this as an investor taking advantage of a relatively high share price to book some gains -- First Advantage is currently trading at levels it hasn't reached since 2021. Given that, I'd keep my eye on the ball to see if First Advantage can continue posting the solid financial results of the past few quarters.
Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.