Forterra Withheld Material Info in Its IPO Filings, Says Securities Class Action

Investors make decisions based largely on what a company’s financial information indicates about its future operating results. However, if “events and uncertainties” exist that might cause a company’s future results to be very different, its SEC filings must reveal them. The complaint for this class action claims that Forterra’s filings for its initial public offering (IPO) did not disclose these events or uncertainties, in violation of the Securities Act of 1933.

The class for this action is all buyers of Forterra common stock issued for Forterra’s October 21, 2016 IPO.

Forterra was formerly Hanson Building Products, at which time it made building materials. In March 2015, the company was bought by Lone Star Fund IX, an investment advisory firm. After a reorganization, Forterra made pipe and other precast products for water-related infrastructure.

Between April 2015 and October 2016, Lone Star made Forterra acquire six other companies; as of June 2016, the complaint claims that Forterra had roughly $1.2 billion in debt, more than triple what it had formerly carried and far more than its competitors.

On July 8, 2016, Forterra filed an S-1 Registration Statement, which, with amendments, was used for its IPO. It made many positive statements about the company, such as the following:

• Forterra had “upgraded” its leadership team;
• It had “strengthened corporate functions” to operate effectively as a standalone company;
• Its initiatives had realized more than $21 million in cost savings;
• Its acquisitions had made it able to cross-sell “to increase penetration and project wins”;
• Its array of acquisitions had enabled it to “maximiz[e] efficiency” and meet “more aggressive timetables” with “lead times among the shortest in the industry”;
• Its “geographic footprint enable[d] [it[ to win more large business projects than [its] local or regional competitors”; and
• Its profit margins were expanding.

However, the complaint clams that the document was inaccurate because it omitted a long list of other facts, such as the following:

• Forterra’s leadership “upgrade” was due to the resignation of its COO and other senior management personnel;
• Sales in its original businesses had significantly declined, and the company was relying on its acquisitions to make up the difference;
• It was experiencing pricing pressure because of competition, requiring it to lower prices;
• Its concrete and steel pipe business was soft;
• It had lost business in its pipe and precast operations because operational problems at its factories had produced delays or defective products;
• It had allowed unpaid invoices to pile up; and
• It had weaknesses in internal controls.

According to the complaint, at the time of this lawsuit’s filing, Forterra’s stock was trading at 75% below its IPO price.