Glossary
Secondary offering
A sale of shares after a company’s IPO, either newly issued stock that dilutes holders or existing stock sold by large shareholders.
A secondary offering is any sale of a public company's shares to investors after its initial public offering. The term covers two quite different things. In a dilutive offering, often called a follow-on, the company creates and sells new shares to raise money. In a non-dilutive offering, existing holders, such as founders, early investors or private equity owners, sell shares they already own, and the company receives none of the proceeds.
How it works
Most marketed offerings are run by underwriters who line up buyers quickly, often overnight after the close, and price the deal at a discount to the last trade. Companies with an effective shelf registration can also sell gradually through an at-the-market (ATM) program, feeding new shares into normal trading over weeks or months.
How the market tends to react
- Dilutive deals often push the stock down on announcement, because of the new supply, the discount and what the raise may signal, such as cash needs or management's view that the stock is richly priced.
- Non-dilutive sales do not change the share count but can weigh on the price, especially if insiders are selling large stakes or a Lockup period has just expired.
- Purpose matters. Money raised to fund an acquisition or growth project is often received better than money raised to cover operating losses.
Details appear in the prospectus supplement filed with the SEC, which states the number of shares, who is selling and how the proceeds will be used.