What Is a Secondary Offering?

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On Wall Street, a secondary offering refers to any large-scale public offering of shares of an existing public company. This is what is called a secondary offer because it occurs after the IPO of the company. This may mean either selling additional shares in the market or to significant shareholders of an existing company that sells a significant amount of their shares. The main reason for the secondary offering is to raise funds, whether for the company itself or for the major shareholders.

Capital Gathering Through a Secondary Offer When a company needs to raise additional capital beyond normal business operations, it has two general options. The first is to borrow money, either by offering bonds or by some other means. This is what is called debt financing and requires the borrower to sign a generally strict repayment agreement with his creditors. Debt financing can also be expensive if the credit rating of the company encourages the market to charge high interest rates for the public offering of debt securities. The second way is a new public offering of shares called equity financing. The company has much more flexibility in the short term, may find it easier to raise additional capital and is not tied to creditors.

Issuance of new shares The costs of this type of secondary offer are generated by the dilution of the shareholder and by the creation of additional claims on the profits and assets of the company. The method of issuing a secondary offering is similar to that of an IPO. An investment bank subscribes to the new investment and any investor can buy the new shares. Current shareholders generally have no right of first purchase.

Shareholder sales A secondary offer may also refer to any significant public offering of shares that is not necessarily authorized by the company. A frequent case if this secondary offer occurs when the initial stakeholders of the company, such as founders, financiers or CEOs, who have received large amounts of stock Initial Public Offering decide to dispose of their assets in society. Funds from these sales go to individual owners and not directly to the business. In this type of secondary offering, no new shares are created and therefore do not dilute the current shares.

An initial public offering is the first issue of shares in the stock market by a newly listed company. IPOs can be used by growing small businesses that need to raise capital for expansion or by large private companies seeking to become public. When an incorporated corporation decides to become a publicly traded company, it usually uses an investment bank to secure its IPO project. The investment bank assumes the risk of selling the shares during an initial public offering and determines the number of shares to be released and their valuation.

Listed companies As a general rule, candidates who participate in the IPO process are considered to be growth companies in their market. These companies intend to expand their business and finance them through an initial public offering. By becoming a publicly traded company, the company gets access to capital that investors intend to use by buying the company's shares in the stock market. However, companies filing an IPO application must also incur additional costs to be a publicly traded company. This includes compliance with Securities and Exchange Commission regulations, tighter accounting rules and increased investor relations efforts.

Investing in IPOs It is generally accepted that the purchase of shares of a company in an initial public offering is riskier than the purchase of shares of an established publicly traded company. . In the case of an existing publicly traded company, investors expect the market value to be already embedded in the price of its shares. However, the IPOs sold on the primary market have not yet undergone this price correction.

IPO subscribers When an incorporated corporation decides to become a publicly traded company, it generally uses an investment bank to subscribe to its proposed initial public offering. The investment bank assumes the risk of selling the shares during an initial public offering and determines the number of shares to be released and their valuation.


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