Glossary - Secondary Offering
A secondary offering occurs when an existing shareholder sells all or part of their shares to other investors in the open market. This action does not issue new shares, instead, it allows existing shares to be sold by shareholders to new investors. Secondary offerings are common in the stock market when major shareholders, such as company founders or private equity investors, wish to liquidate part of their holdings.
Also known as
- Follow-on offering
- Secondary market offering
Use cases examples
- Press Release: XYZ Corporation announced today a secondary offering where one of its primary investors will be selling 2 million shares in the open market to diversify their investment portfolio.
- SEC Filing: In the SEC filing, ABC Tech indicated its intention to facilitate a secondary offering for its existing shareholders, allowing them to sell up to 5% of their stakes to the public.
Considerations for investors
- Assess the reason behind the secondary offering; whether it is for liquidity purposes or a shareholder reducing their position could signal different things.
- Analyze market reaction to the secondary offering, as this can often offer insight into the market's perception of the company's value.
Considerations for founders
- Understand the impact on share price as large volumes of shares sold could depress the market price temporarily.
- Consider the timing and market conditions to ensure the secondary offering is conducted in a favorable environment.
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