Please ensure Javascript is enabled for purposes of website accessibility

Don't Worry About Corsair's Public Offering

By Evan Niu, CFA - Jan 22, 2021 at 10:00AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Private equity firm and majority owner EagleTree is cashing out some of its stake, as expected.

Earlier this week, Corsair Gaming (CRSR 3.27%) announced that it was launching a public offering, which sent shares lower. Certain existing shareholders are selling 7.5 million shares through the deal, with underwriters having a 30-day option to buy another 1.13 million shares approximately.

Here's why investors shouldn't fret about the deal.

Custom gaming PC setup made by Corsair

A custom gaming PC setup made by Corsair. Image source: Corsair Gaming.

It's mostly just EagleTree

The deal is not a dilutive secondary offering where Corsair is issuing more shares. Instead, the company is conducting the offering as an orderly way for current stockholders to cash out some of their holdings. Specifically, it's primarily majority investor EagleTree Capital, which is selling a chunk of its position. A few other execs are also selling some shares, such as Thi La, who was recently promoted to chief operating officer.

Stockholder

Role

Shares Offered

EagleTree Capital

Majority owner

7.135 million

Andy Paul

CEO

250,000

Thi La

COO

100,000

Ronald van Veen

Head of investor relations

15,000

Total

 

7.5 million

Data source: SEC filings.

EagleTree Capital is a private equity firm that acquired its majority stake in Corsair back in 2017. The investment firm had 77.8 million shares, a 92% stake, in Corsair prior to its September initial public offering and sold several million shares through that offering. After this latest sale is complete, EagleTree will have 63 million shares, or 69% of shares outstanding.

None of this is particularly surprising. By definition, private equity firms invest in private companies with the hope of creating value by helping them grow. The ultimate goal is often to take the companies public, which provides liquidity and gives the firm a chance to realize some of those gains. EagleTree has accomplished its objective: The initial investment was $550 million, and Corsair's current market cap as a public company is $3.3 billion.

Furthermore, companies sometimes conduct these types of offerings shortly after going public as a way to mitigate potential volatility related to lockup expirations. Conducting an offering to give existing shareholders an opportunity to sell at a specific price is less chaotic than flooding the market with shares once lockup agreements expire, which often (but not always) creates significant selling pressure.

In Corsair's case, the lockup agreements pertaining to the IPO expire on March 21, at which point the supply of available shares will increase substantially. Corsair's float is currently just under 18 million shares, or approximately 20% of the 91.9 million total shares outstanding. As the float increases in the months ahead, due to this public offering as well as lockup-agreement expirations, that should help reduce some of the stock's volatility.

Corsair's fundamentals remain incredibly strong, and it was always a distinct possibility that EagleTree would unload some of its holdings. Long-term investors should remain focused on the booming live-streaming market that is driving revenue growth and margin expansion. The company is expected to report fourth-quarter results next month, and judging by larger peer Logitech International's recent results (Logitech's gaming segment saw revenue surge by 73%), Corsair may be on track to beat earnings expectations, even after boosting its guidance at the end of November.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Corsair Gaming, Inc. Stock Quote
Corsair Gaming, Inc.
CRSR
$15.80 (3.27%) $0.50
Logitech International SA Stock Quote
Logitech International SA
LOGI
$58.34 (-1.49%) $0.88

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
345%
 
S&P 500 Returns
119%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/17/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.