Secondary Public Offer

Secondary public offer is the process of the issue of new shares or stocks for public selling from an organization, which has already done its IPO or Initial Public Offering. Normally, these types of public offerings are done by financial entities that want to raise capital or refinance capital for growth. The funds that have been collected from these types of secondary public offerings are directed towards the company via investment banks, which carry out the underwriting process for the offering. An apportionment or allotment is issued to the investment banks and also there is an over allotment that they can select to practice in case there is a high chance of receiving gain on the spread between the sales prices of the securities and the apportionment or allotment price of the securities.

Secondary public offer is a method for an organization to enhance its market capitalization of the stock and spread that is outstanding (the value of the company) on a larger number of shares. In case of secondary public offerings where the underwriting and selling of the new shares are done, there occurs a dilution of the stockholders ownership position. In this case the stocks held by these shareholders are issued on Initial Public Offering or IPO.

Secondary public offering also happens in case of selling of securities where a number of principal shareholders of a company sell out the entire portion or a big portion of the holdings they have. The sales proceeds are given to the shareholders who are selling their shares. Frequently, it is seen that the company, which carries out the issuance of shares, has the holding of a substantial percentage of the shares or stocks that it has issued.

Usually, a secondary public offering takes place when the entrepreneurs of a business entity, as well as possibly a small number of original financial sponsors take a decision that they will diminish their positions in the organization. This type of secondary public offering is usually seen in the years succeeding an Initial Public Offering after the lock-up period ends. The proprietors of companies, which are owned by a limited number of shareholders, sell out their shares for the purpose of relaxing their positions commonly in a gradual manner to ensure that the stock prices of the company do not fall sharply as a consequence of high volume of sales. Secondary public offering does not enhance the number of stocks or shares in the market and in most instances, it is usually carried out for companies that are not traded in high volume. This type of secondary public offering does not involve any dilution of the holdings of the proprietors and there is no issue of new shares. In this type of offering, no fresh underwriting procedure takes place.

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Last Updated on : 1st July 2013