ECIDA expects sale of Synacor stock to bolster development
Updated: September 2, 2012, 8:31 AM
The Erie County Industrial Development Agency is selling its shares of Synacor stock, several months after the Buffalo-based Internet content provider went public.
Synacor's stock has been selling in the $8 per share range on Nasdaq. If the price stays consistent, the sale of the ECIDA's shares should generate about $3.5 million to $4 million.
Andrew Schoeppich, the ECIDA's chief financial officer, said proceeds of the sale would go toward economic development purposes by the agency, but would not be restricted to a specific use.
The agency expects to sell 50,000 to 100,000 shares per week, a pace that it does not expect to dramatically affect the company's stock price. The process should be completed within about eight weeks.
The ECIDA invested in Synacor in 2003, 2004 and 2007 as part of the agency's venture capital investment program, which is designed to help emerging Buffalo Niagara companies grow. That type of capital is often difficult for early-stage companies to obtain, Schoeppich said.
The ECIDA's sale of the stock was spurred by Synacor's conversion to a publicly traded company, he said. "Once it goes public, there's no real reason to hold it."
Synacor's initial public offering took place in February, with the company's chief executive officer, Ron Frankel, on hand at Nasdaq in New York City for the occasion. While Synacor sold 6.8 million shares that day, the shares sold for $5 apiece, rather than the hoped-for $10 to $12 range. Synacor's share price climbed over the summer, before settling into the $8 range lately.
The "lock-up period" connected to the IPO expired this month, enabling the ECIDA and similar shareholders to begin selling their shares.
Earlier this month, three different investment banks contacted the ECIDA to explore the idea of conducting a single "block trade" of all 538,461 shares of the agency's Synacor stock. The agency instead chose to sell the shares through a series of open-market trades.
Schoeppich said the block trade method would have had drawbacks. It would be at a lower price than the open-market price and would incur commission costs that would be paid to the investment bank. The agency also would have to go through a time-consuming process to select an investment bank, and the block-trade method would be riskier, since the price would not be averaged out over a series of sales.
Al Culliton, the ECIDA's chief operating officer, said the agency's staff and board have been talking about reviving the agency's venture capital investment program, which has been largely inactive in the past few years. "There is clearly a need for it" among area companies, he said.
Various studies have pointed to a need for more venture capital investing in the region to help emerging companies born in the Buffalo area to establish themselves and create jobs.
Culliton said the ECIDA is presently invested in about 14 area companies, including Kinex. But he said most of the companies the agency has invested in have not demonstrated much real growth in value, either because they are young or because they have not worked out as planned.
Even with that mixed record, Culliton said he sees value in additional venture capital investing, to give more companies an opportunity to break through. Venture capital investing by its nature is hit or miss, so the success rate varies, he said. "It's not like a lending operation where you collect interest from everyone," he said.