Secondary offering?

Question

How does a secondary offering work and what is the process a company needs to go through? What is the cost for the company? Are there any regulations for secondary offerings?

Answer 1

Do you mean "Seasoned offering."

I ask, because a Secondary Offering is when someone other than the firm sells shares. Technically, if you own shares and sell them, it is a secondary offering. However, the term is not usually used that way. It is usually used to refer to insiders selling their shares through the company as part of a Primary stock offering by the firm. For example, a company may go IPO and sells 25,000,000 shares to the bublic where 20,000,000 ar enew shares created for this sale and 5,000,000 are shares owned by the founders.

It is not usually considered a good sign when insiders sell at IPO.

As for seasoned offerings (which are Primary Offerings), that is when a firm that has already gone public creates new shares that they sell to the public. The company must register these shares with the SEC and needs to hire a law firm. They usually sell the shares through a syndicate of investment banks. They charge between 2-3% of the total amount raised as their fee (the fee is usually 7% for IPOs). For firms that have issued debt (other than banks), selling seasoned shares is taken as a bad sign -- and stock prices usually drop by about 3%-4%. On average, there is no drop in price when the firm has no debt (this fact has not been published -- except in my dissertation).

Answer 2

If a firm already has stock trading in a public equity market and it needs to raise more capital, it issues more shares to the public in a secondary offering. The firm needs to go through a registration process that is similar to what it went through for its IPO. The costs are similar- underwriting, notices & announcements, regulatory filings, etc.

Answer 3

your brokerage should be able to advise you on any questions like this.