PE firms are rushing to offload post-IPO shares

The restriction, known as a lock-up, is meant to stabilize the stock price by limiting the supply of shares during the volatile early months. The lock-up window typically runs 180 days, though it can be as short as 90 days.

A handful of recent PE-backed IPOs have done away with the lock-up or at least compressed the timeline. While this makes sense in a market where investors want quick cash, for some, it raises questions about sponsors' conviction in the businesses they've listed and the broader purpose of public markets.

Take Forgent Power Solutions , an electrical equipment maker owned by San Diego-based PE firm Neos Partners .

Forgent went public in early February this year. Since then, the company and its sponsor have completed three rounds of follow-on stock offerings—in March, June and early July—each within the 180-day lock-up window.

Roughly 182 million shares changed hands, including those sold in the IPO, for about $7 billion in gross value, according to a PitchBook analysis of public filings. The offerings raised around $6.3 billion in proceeds before expenses. Forgent used all of its proceeds to redeem the equity interest held by Neos, while the proceeds from Neos' own registered share sales stayed with the PE firm, the filings show.

The sales allowed Neos to unwind its position at a striking pace. The energy transition and infrastructure specialist reduced its voting power from about 81% just after the IPO to below 50% in the span of five months.

Goldman Sachs , Jefferies and Morgan Stanley led all three follow-ons and were also the lead underwriters on Forgent's IPO.

Forgent, Neos and the banks didn't respond to a request for comment.

Seeking an early release to take some chips off the table—and ride an IPO stock's strong trading momentum—has become increasingly common among PE-backed listings, even if not every sponsor has moved at Forgent's pace.

Seven weeks after Aevex went public, the drone maker and its PE sponsor, Madison Dearborn Partners , ran a follow-on offering. The share sale generated $216 million in gross proceeds, most of which was distributed to the Chicago-based buyout shop, according to public filings and a deal summary produced by RW Baird , a lead underwriter on this offering.

Underwriters for medical products supplier Medline also lifted the lock-up early, paving the way for Blackstone , The Carlyle Group , Hellman & Friedman and sovereign wealth fund the Abu Dhabi Investment Authority to sell 75 million shares in March, within less than three months of the IPO. The secondary offering was "multiple times oversubscribed," Bloomberg reported, and raised $3.5 billion.

Medline's stock shot up to nearly $50 apiece about two months after its December public listing, roughly 70% above its IPO price, before paring some of those gains. The stock closed at around $41 on Thursday.

PE backers of engineering business Legence and power storage supplier Solv Energy also took money off the table within 180 days of the companies' market debuts.

Pre-IPO equity holders, especially the largest ones, typically wait out a six-month lock-up and then exit in stages through several rounds of block trades—a process that can cost a sponsor several years to fully unwind its positions. That drawn-out timeline is a major reason fund managers tend to favor M&A sales over IPOs.

However, as the pressure to return distributions to LPs has been more acute than ever, it's easy to see what prompted the PE managers to move faster and sell sooner.

"With some of these PE-back companies, [liquidity] might actually be an important consideration because one of the complaints from a lot of LPs has been too few exits," said Jay Ritter, a finance professor emeritus at the University of Florida who specializes in IPO studies and now directs The IPO Initiative.

A lock-up is meant to prevent pre-IPO shareholders from flooding the market with shares—a move that could signal a lack of confidence and cause big swings in the stock price.