Subsequent Offering

What Is a Subsequent Offering?

The term subsequent offering alludes to the issuance of additional stock shares after a company has previously gone public through a initial public offering (IPO). Subsequent offerings are, accordingly, made by companies that are as of now publicly traded or by an existing shareholder. These offerings are commonly made on a stock exchange through the secondary market, especially when they're offered to the overall population. They are commonly used to raise capital or to help their cash reserves. Thusly, they might assume the form of dilutive or non-dilutive offerings.

How a Subsequent Offering Works

At the point when a business needs to make the transition from a private to a public company, it promotes its intention to raise capital by giving shares through an initial public offering. The company enrolls the aid of at least one banks to act as underwriters to price the shares, market, and publicize the offering. Once prepared, the company opens up to the world and sells shares to institutional and other large investors on the primary market. Shares then, at that point, begin trading on the secondary market to the overall population.

Subsequent offerings happen after a company has previously gone public. These offerings are otherwise called follow-on offerings or follow-on public offerings (FPOs). At times, they may likewise be called secondary offerings. As opposed to being priced by underwriters, the prices for subsequent offerings are ordinarily driven by the market.

As noted before, this type of offering can be initiated by the company itself, and that means the company chooses to issue new shares on the market. In different conditions, an existing [shareholder](/shareholder, for example, someone from the company's management or the company's pioneer, may choose to sell their shares on the market by giving a subsequent offering.

Companies must register any subsequent or follow-on offerings with the Securities and Exchange Commission (SEC). Just like IPOs, these offerings are regulated by federal law.

No two subsequent offerings are ever something very similar. These offerings come in two unique types: Dilutive and non-dilutive. What's more, the reasons for making this stride differ on a number of factors, including raising new capital, supporting cash reserves, or expanding value for the company's existing shareholders.

Special Considerations

Subsequent or follow-on offerings could possibly be a reason to worry for existing shareholders. That is the reason investors ought to observe what subsequent offerings mean to them and how they influence their investments. The main thing is to determine whether it's a dilutive or a non-dilutive offer, and who is making the shares accessible.

Dilutive offerings mean new shares are issued, and that means there's a generally excellent chance a financial backer's holdings in the company will be diluted. If so, investors ought to conclude whether the offer price is in accordance with the company's value.

Assuming that an existing shareholder is emptying their holdings, finding out the position of the shareholder can give investors important understanding. In some cases these insiders are aware of information different shareholders can't access. So if the pioneer or chief executive officer (CEO) is dumping a great deal of shares, something might be up.

Types of Subsequent Offerings

As mentioned over, a subsequent offering can be either dilutive or non-dilutive.

Dilutive Subsequent Offering

In a dilutive subsequent offering, new shares of stock are made by the responsible company. The creation of these shares increases the total number of shares outstanding. Thus, giving these shares weakens earnings on a per-share basis.

A company might go to market with a dilutive subsequent offering to raise capital for different opportunities, like funding new operations or tasks, paying off debt, or continuing with its growth plans. Another reason why a company might take this route is to help its cash reserves so it stays at a similar debt-to-value ratio.

Non-Dilutive Subsequent Offering

In a non-dilutive subsequent offering, privately held shares of the company, which are shares held by the company's founders, directors, or different insiders, are offered available to be purchased to the public. Since no new shares of the company's stock are made, earnings are not diluted on a per-share basis.

In this type of subsequent offering, insiders frequently need to exploit the high demand for company shares so they can enhance personal or business holdings or lock-in gains on their investment. Initial shareholders might choose to issue a subsequent offering in the wake of fulfilling a required holding period after the IPO.

Certifiable Example

Meta (META), formerly Facebook, announced a subsequent offering of 70 million shares in 2013. This offering consisted of in excess of 27 million shares offered by the company and right around 43 million by existing shareholders, which included in excess of 41 million shares by Mark Zuckerberg. The company said it was involving the capital for "working capital and other general corporate purposes." The proceeds from the sale of Zuckerberg's shares were utilized to pay off his tax liabilities.

Highlights

• A subsequent offering is the issuance of additional stock shares after a company opens up to the world through an initial public offering.
• They can be utilized to raise capital or lift capital reserves.
• Investors ought to investigate as needs be on whether and what subsequent offerings will mean for their investment holdings.
• Dilutive subsequent offerings increase the number of outstanding shares while non-dilutive offerings make no new shares in a company.
• Subsequent offerings are commonly made on the secondary market.