A Quarter Of Snap IPO Buyers Agree Not To Sell For One Year

For the latest glimpse of the euphoria in the equity market, look no further than the Snap(chat) IPO, whose order book closes at noon today and is expected to price tomorrow, March 1, after the close. While the initial price range was presented as $14-16, according to Bloomberg orders for the public offering are concentrating in the $17-18 range, well above the high end of the range.

Yet while broad interest in the biggest IPO of the past few years is hardly surprising at a time when the S&P is trading at all time highs, what is more notable is that according to Reuters, Snap disclosed yesterday that it expected buyers of up to a quarter of the offered shares in the $3.2 billion initial public offering to agree not to sell them for a year. While Snap cautioned it had no binding commitments yet from investors accepting such a lock-up period, the disclosure is a sign of confidence from the company in what is expected to be the biggest U.S. IPO since Facebook.

In its updated IPO registration document with the U.S. Securities and Exchange Commission on Monday, Snap said it expected approximately 50 million shares of its Class A common stock purchased by investors in the offering to be subject to a separate one-year lock-up agreement. The roughly 50 million shares are designated for new Snap IPO investors who do not currently have a stake in the company, the sources said.

While lock-up periods help companies avoid stock volatility by preventing company insiders from selling within an allotted time, a year-long lock-up period for non-insiders is not only unusual, it is atypically long, potentially signifying strong demand for the IPO. Alternatively, since Snap is requesting it, the company may be worried about selling pressure out of the fate.

Lock-up periods can buoy companies at risk of a stock selloff in the months following their IPO. This risk is particularly strong for companies in the technology sector. Eight of the 10 biggest technology IPOs fell by between 25 percent and 71 percent in their first 12 months on the public market, according to a Reuters analysis of market performance.

Snap is targeting a valuation of between $19.5 billion and $22.3 billion from listing on the New York Stock Exchange on Thursday. While the company was initially looking to price 200 million shares on Wednesday night at a range of $14 to $16 dollars a share, the revised price talk may also lead to more shares being sold, effectively bumping up the valuation in the latest "hot", if money losing, social network.