Secondary Offering

Key Highlights

• A secondary offering occurs when a publicly listed company issues additional shares for sale to the public after its initial public offering (IPO).

• Types of secondary offerings include non-dilutive and dilutive secondary offering.

What is Secondary Offering?

A secondary offering occurs when a publicly listed company issues additional shares for sale to the public after its initial public offering (IPO). These shares are typically sold by existing shareholders- like early investors, company insiders, or big institutions- not by the company itself.

Types of Secondary Offerings

• Non-Dilutive Secondary Offering: Shares sold are existing shares held by investors; no new shares are issued, so the total number of shares outstanding remains the same.

• Dilutive Secondary Offering (Follow-on Offering): The company issues new shares to raise additional capital, increasing the total shares outstanding and diluting existing shareholders’ ownership.

Key Points

• Secondary offerings occur after the IPO and involve the transfer of shares between investors on the secondary market.

• Companies may also conduct follow-on offerings (a type of secondary offering) to raise new capital for purposes like debt repayment, acquisitions, or funding operations.

• Secondary offerings are not dilutive if they involve only the sale of existing shares; they are dilutive if new shares are issued.

Example

If an early investor who purchased shares during the IPO decides to sell a large block of shares to the public, that sale constitutes a secondary offering. The investor receives the proceeds, while the company does not receive additional funds.