At-the-market offering

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An at-the-market (ATM) offering is a type of follow-on offering of stock utilized by publicly traded companies in order to raise capital over time. In an ATM offering, exchange-listed companies incrementally sell newly issued shares into the secondary trading market through a designated broker-dealer at prevailing market prices. [1] The broker-dealer sells the issuing company's shares in the open market and receives cash proceeds from the transaction. The broker-dealer then delivers the proceeds to the issuing company where the cash can be used for a variety of purposes. A higher stock price means a greater amount of money can be raised. The issuing company is able to raise this kind of capital on an as-needed basis [2] with the option to refrain from offering shares if the available prices on a particular day are unsatisfactory. ATM offerings can be started and stopped at any point, and they can also become more aggressive by selling more shares and raising more money when there is an opportunity in the market or additional need by the issuing company. ATMs can be positioned in advance of an upcoming liquidity event or major milestone to take advantage of increased liquidity and a rising stock price. [3]

A follow-on offering is an issuance of stock subsequent to the company's initial public offering. A follow-on offering can be either of two types : dilutive and non-dilutive. A secondary offering is an offering of securities by a shareholder of the company. A follow on offering is preceded by release of prospectus similar to IPO: a Follow-on Public Offer (FPO).

Stock financial instrument

The stock of a corporation is all of the shares into which ownership of the corporation is divided. In American English, the shares are commonly called as stocks. A single share of the stock represents fractional ownership of the corporation in proportion to the total number of shares. This typically entitles the stockholder to that fraction of the company's earnings, proceeds from liquidation of assets, or voting power, often dividing these up in proportion to the amount of money each stockholder has invested. Not all stock is necessarily equal, as certain classes of stock may be issued for example without voting rights, with enhanced voting rights, or with a certain priority to receive profits or liquidation proceeds before or after other classes of shareholders.

Financial capital is any economic resource measured in terms of money used by entrepreneurs and businesses to buy what they need to make their products or to provide their services to the sector of the economy upon which their operation is based, i.e. retail, corporate, investment banking, etc.

Contents

Advantages & Disadvantages

ATM financing strategies provide control on the timing and amount of capital raised. This allows companies to raise capital on the terms that they choose, including when and if the ATM is utilised. This allows companies to opportunistically take advantage of increases in the share price and means that companies do not have to time the capital raise perfectly, in effect "averaging in" to their own share price. If successful, it can be a blessing for raising general working capital, funding specific projects, funding R&D, and helping to manage the balance sheet (e.g. paying off debt when needed). [4] Because of the “dribble out” [5] nature of ATM offerings and the uncertainty of how much will be raised (for example if the target minimum price is set too high by the company), they are not as useful for a company in dire need of financing or for a company without an actively traded ticker symbol or imminent news releases.

Research and development general term for activities in connection with corporate or governmental innovation

Research and development, also known in Europe as research and technological development (RTD), refers to innovative activities undertaken by corporations or governments in developing new services or products, or improving existing services or products. Research and development constitutes the first stage of development of a potential new service or the production process.

Debt deferred payment, or series of payments, that is owed in the future

Debt is when something, usually money, is owed by one party, the borrower or debtor, to a second party, the lender or creditor. Debt is a deferred payment, or series of payments, that is owed in the future, which is what differentiates it from an immediate purchase. The debt may be owed by sovereign state or country, local government, company, or an individual. Commercial debt is generally subject to contractual terms regarding the amount and timing of repayments of principal and interest. Loans, bonds, notes, and mortgages are all types of debt. The term can also be used metaphorically to cover moral obligations and other interactions not based on economic value. For example, in Western cultures, a person who has been helped by a second person is sometimes said to owe a "debt of gratitude" to the second person.

Ticker symbol abbreviation used to uniquely identify publicly traded shares or cryptocurrencies

A ticker symbol or stock symbol is an abbreviation used to uniquely identify publicly traded shares of a particular stock on a particular stock market. A stock symbol may consist of letters, numbers or a combination of both. "Ticker symbol" refers to the symbols that were printed on the ticker tape of a ticker tape machine.

History

The first ATM offerings were completed in the early 1980s for utilities companies looking to raise capital from time-to-time to meet their financial needs. Since then, at-the-market offerings have been used by large and small capitalization issuers in a wide variety of industries with significant growth occurring after the 2008 financial crisis. Although this financing method has become particularly popular with small-cap life sciences issuers, large-capitalization companies such as Bank of America, [6] Boston Properties and Ford Motor Company have recently employed ATM offerings as well.

Public utility an organization that maintains the infrastructure for a public service

A public utility is an organization that maintains the infrastructure for a public service. Public utilities are subject to forms of public control and regulation ranging from local community-based groups to statewide government monopolies.

Market capitalization

Market capitalization is the market value of a publicly traded company's outstanding shares. Market capitalization is equal to the share price multiplied by the number of shares outstanding. As outstanding stock is bought and sold in public markets, capitalization could be used as an indicator of public opinion of a company's net worth and is a determining factor in some forms of stock valuation.

Financial crisis of 2007–2008 Global financial crisis

The financial crisis of 2007–2008, also known as the global financial crisis and the 2008 financial crisis, is considered by many economists to have been the most serious financial crisis since the Great Depression of the 1930s.

Related Research Articles

Capital market financial market for medium and long-term capital raising

A capital market is a financial market in which long-term debt or equity-backed securities are bought and sold. Capital markets channel the wealth of savers to those who can put it to long-term productive use, such as companies or governments making long-term investments. Financial regulators like the Bank of England (BoE) and the U.S. Securities and Exchange Commission (SEC) oversee capital markets to protect investors against fraud, among other duties.

The primary market is the part of the capital market that deals with the issuance and sale of equity-backed securities to investors directly by the issuer. Investor buy securities that were never traded before. Primary markets create long term instruments through which corporate entities raise funds from the capital market. It is also known as the New Issue Market (NIM).

Financial market generic term for all markets in which trading takes place with capital

A financial market is a market in which people trade financial securities and derivatives such as futures and options at low transaction costs. Securities include stocks and bonds, and precious metals.

Security (finance) tradable financial asset

A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some jurisdictions the term specifically excludes financial instruments other than equities and fixed income instruments. In some jurisdictions it includes some instruments that are close to equities and fixed income, e.g., equity warrants. In some countries and languages the term "security" is commonly used in day-to-day parlance to mean any form of financial instrument, even though the underlying legal and regulatory regime may not have such a broad definition.

Market liquidity markets feature whereby an individual or firm can quickly purchase or sell an asset without causing a drastic change in the assets price

In business, economics or investment, market liquidity is a market's feature whereby an individual or firm can quickly purchase or sell an asset without causing a drastic change in the asset's price. Liquidity is about how big the trade-off is between the speed of the sale and the price it can be sold for. In a liquid market, the trade-off is mild: selling quickly will not reduce the price much. In a relatively illiquid market, selling it quickly will require cutting its price by some amount. Liquidity can be measured either based on trade volume relative to shares outstanding or based on the bid-ask spread or transactions costs of trading.

Initial public offering (IPO) or stock market launch is a type of public offering in which shares of a company are sold to institutional investors and usually also retail (individual) investors; an IPO is underwritten by one or more investment banks, who also arrange for the shares to be listed on one or more stock exchanges. Through this process, colloquially known as floating, or going public, a privately held company is transformed into a public company. Initial public offerings can be used: to raise new equity capital for the company concerned; to monetize the investments of private shareholders such as company founders or private equity investors; and to enable easy trading of existing holdings or future capital raising by becoming publicly traded enterprises.

A closed-end fund (CEF) or closed-ended fund is a collective investment model based on issuing a fixed number of shares which are not redeemable from the fund. Unlike open-end funds, new shares in a closed-end fund are not created by managers to meet demand from investors. Instead, the shares can be purchased and sold only in the market, which is the original design of the mutual fund, which predates open-end mutual funds but offers the same actively-managed pooled investments.

Public company Company that offers its securities for sale to the general public

A public company, publicly traded company, publicly held company, publicly listed company, or public limited company is a corporation whose ownership is dispersed among the general public in many shares of stock which are freely traded on a stock exchange or in over the counter markets. In some jurisdictions, public companies over a certain size must be listed on an exchange. A public company can be listed or unlisted.

Secondary market company

The secondary market, also called the aftermarket and follow on public offering is the financial market in which previously issued financial instruments such as stock, bonds, options, and futures are bought and sold. Another frequent usage of "secondary market" is to refer to loans which are sold by a mortgage bank to investors such as Fannie Mae and Freddie Mac.

Formally known as an "over-allotment option," a greenshoe is the term commonly used to describe a special arrangement in a share offering, for example an initial public offering (IPO), which enables the investment bank representing the underwriters to support the share price after the offering without putting their own capital at risk. The option is codified as a provision in the underwriting agreement between the leading underwriter - the lead manager - and the issuer or vendor.

A private investment in public equity, often called a PIPE deal, involves the selling of publicly traded common shares or some form of preferred stock or convertible security to private investors. It is an allocation of shares in a public company not through a public offering in a stock exchange. PIPE deals are part of the primary market. In the U.S., a PIPE offering may be registered with the Securities and Exchange Commission on a registration statement or may be completed as an unregistered private placement.

Rights issue

A rights issue or rights offer is a dividend of subscription rights to buy additional securities in a company made to the company's existing security holders. When the rights are for equity securities, such as shares, in a public company, it is a non-dilutive pro rata way to raise capital. Rights issues are typically sold via a prospectus or prospectus supplement. With the issued rights, existing security-holders have the privilege to buy a specified number of new securities from the issuer at a specified price within a subscription period. In a public company, a rights issue is a form of public offering.

Bucharest Stock Exchange Stock exchange located in Bucharest, Romania

The Bucharest Stock Exchange (BVB) is the stock exchange of Romania located in Bucharest. As of November 2017, there are 88 companies listed on BVB's regulated market and 299 companies listed on AeRO market with a total market capitalization of €35.6 billion. Starting 2014 and up to date, the main index BET went up by 19.9%, thus exceeding the maximum of the last 9 years.

A block trade is a permissible, noncompetitive, privately negotiated transaction either at or exceeding an exchange determined minimum threshold quantity of shares, which is executed apart and away from the open outcry or electronic markets. Major broker-dealers often provide "block trading" services—sometimes known as "upstairs trading desks"—to their institutional clients. In the United States and Canada a block trade is usually at least 10,000 shares of a stock or $100,000 of bonds but in practice significantly larger.

A Direct Public Offering (DPO) is a method by which a business can offer an investment opportunity directly to the public.

The Nepal Stock Exchange Limited is the only Stock Exchange of Nepal. It is located in Singha Durbar Plaza, Kathmandu Nepal. On September 15, 2017 the equity market capitalization of the companies listed on NEPSE was approximately US$17.3 billion.

A reverse convertible security or convertible security is a short-term note linked to an underlying stock. The security offers a steady stream of income due to the payment of a high coupon rate. In addition, at maturity the owner will receive either 100% of the par value or, if the stock value falls, a predetermined number of shares of the underlying stock. In the context of structured product, a reverse convertible can be linked to an equity index or a basket of indices. In such case, the capital repayment at maturity is cash settled, either 100% of principal, or less if the underlying index falls conditional on barrier is hit in the case of barrier reverse convertibles.

SWORD-financing is a special form of financing invented to help junior biotech companies access institutional capital markets to finance their R&D via establishing a special purpose entity and giving the investors partial rights to the outcomes of the R&D projects that they are funding.

References

  1. Bass, Berry & Sims PLC. "Capital Markets Trend: At-the-Market Offerings" [ permanent dead link ], 2009. Retrieved on 10 December 2012.
  2. Goodwin Proctor LLP. "At The Market Offerings: Raising Equity Capital in Volatile Markets" Archived May 1, 2015, at the Wayback Machine ., 2012. Retrieved on 10 December 2012.
  3. Morrison & Foerster LLP. "FREQUENTLY ASKED QUESTIONS ABOUT AT-THE-MARKET OFFERINGS", 2012. Retrieved on 13 November 2012.
  4. MedCity News. "At-the-market Offerings for Biotech Funding? Review 4 Quick Perspectives", 2012. Retrieved on 10 December 2012.
  5. McCarthy, Dennis. "ATM – At the Market Offering", 2012. Retrieved on 10 December 2012.
  6. Grocer, Stephen. "The Biggest Bank Capital Raisings: The List", The Wall Street Journal , New York, 4 December 2009. Retrieved on 13 November 2012.