As it is called, a public offering is just that. A corporate entity or even a government agency can solicit bids or prices from the general populous for securities or financial instruments that represent a certain amount of financial interest in its operations. This can be in the form of equity or debt. These instrument would typically be underwritten by a government regulated business such as a broker or dealer who specializes in these types of transactions.
A non private offering can be conducted in a couple of ways. Private offerings are earmarked for a select few accredited investors. For popular public deals that receive a lot of interest, the underwriter gives preference to its best clients which are larger institutions, typically. These investors are also deemed sophisticated investors. An allocation is also made for the individual or retail investor. This represents a smaller amount of the entire underwriting as individuals generally have smaller asset sizes. This allocation to the retail sector can vary from deal to deal depending on deal size, popularity, and issuer criteria.
The pricing associated with this type of transaction has come under some scrutiny. For example, let us say a company wanted to raise one hundred million dollars. They can tender a million share at a hundred dollars per share. However, if the investors are willing to pay up to say one hundred fifty or even two hundred, then that could be considered a mispriced deal.
Post issuance trading activity is vital in determining the success of an underwriting. Often times, investors want to see the value of their company increase. However, if the secondary market demonstrates a significantly higher result, say a 50% plus increase, then clearly the initial price that was set was too low. This means the company could have raised more capital if the price had been set higher. The role of the underwriter is to insure that the issuer receives a fair price, which does not always equate to the highest.
Therefore, in certain cases, instead of having a group of bankers along with a small circle of investors decide on the pricing of a deal, many issuing companies have opted for a dutch auction. Here, the investors bid on the price they are willing to purchase a certain amount of securities. The company then takes all the bids and accepts the price that clears the offering.
Obviously, the company has more direct control over this process and can decide on how many shares to offer at the accepted clearing price. The negative with this is that often times the company has no real control as to the type of investors that get their shares. It is sometimes better knowing that the ownership of your company is in stable hands, but as with all things, there is an associated cost.
Having completed the transaction, the company issuing the securities has added responsibilities. They would be required to provide periodic updates on their performance and financial condition. Depending on how well the processes are in place, this can expose the company to potential legal problems. Having the proper procedures in place can be burdensome to some smaller organizations. Additionally, management now has added responsibilities to a larger constituency.
The purpose behind a public offering is generally to expand the business operations. This type of transaction supplies the company with vital capital and also represents a branding event. As most business media look at such transactions as an indicator of investor sentiment, their coverage gives the added benefit of free publicity. A public issuance legitimizes a company in the eye of the financial markets. Aside from expanding operations, some issuers utilize such a transaction in order to divest their investments. Whether its for expansionary purposes or as an exit strategy, a public offering represents a decisive turning point in the life span of a corporation.
A non private offering can be conducted in a couple of ways. Private offerings are earmarked for a select few accredited investors. For popular public deals that receive a lot of interest, the underwriter gives preference to its best clients which are larger institutions, typically. These investors are also deemed sophisticated investors. An allocation is also made for the individual or retail investor. This represents a smaller amount of the entire underwriting as individuals generally have smaller asset sizes. This allocation to the retail sector can vary from deal to deal depending on deal size, popularity, and issuer criteria.
The pricing associated with this type of transaction has come under some scrutiny. For example, let us say a company wanted to raise one hundred million dollars. They can tender a million share at a hundred dollars per share. However, if the investors are willing to pay up to say one hundred fifty or even two hundred, then that could be considered a mispriced deal.
Post issuance trading activity is vital in determining the success of an underwriting. Often times, investors want to see the value of their company increase. However, if the secondary market demonstrates a significantly higher result, say a 50% plus increase, then clearly the initial price that was set was too low. This means the company could have raised more capital if the price had been set higher. The role of the underwriter is to insure that the issuer receives a fair price, which does not always equate to the highest.
Therefore, in certain cases, instead of having a group of bankers along with a small circle of investors decide on the pricing of a deal, many issuing companies have opted for a dutch auction. Here, the investors bid on the price they are willing to purchase a certain amount of securities. The company then takes all the bids and accepts the price that clears the offering.
Obviously, the company has more direct control over this process and can decide on how many shares to offer at the accepted clearing price. The negative with this is that often times the company has no real control as to the type of investors that get their shares. It is sometimes better knowing that the ownership of your company is in stable hands, but as with all things, there is an associated cost.
Having completed the transaction, the company issuing the securities has added responsibilities. They would be required to provide periodic updates on their performance and financial condition. Depending on how well the processes are in place, this can expose the company to potential legal problems. Having the proper procedures in place can be burdensome to some smaller organizations. Additionally, management now has added responsibilities to a larger constituency.
The purpose behind a public offering is generally to expand the business operations. This type of transaction supplies the company with vital capital and also represents a branding event. As most business media look at such transactions as an indicator of investor sentiment, their coverage gives the added benefit of free publicity. A public issuance legitimizes a company in the eye of the financial markets. Aside from expanding operations, some issuers utilize such a transaction in order to divest their investments. Whether its for expansionary purposes or as an exit strategy, a public offering represents a decisive turning point in the life span of a corporation.
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