As a business entity the company definitely needs capital in the form of funds What Is Secondary Offering By Companies that it can run its operational activities smoothly. This capital is also often needed by the company op a wider business, such as opening branches, expanding, and so on.
For private companies, one way to get this capital is by conducting an IPO or offering its shares to the public. However, what about companies that have previously conducted IPOs? How does the company get additional capital for its business purposes?
Under these conditions, it is not uncommon for companies to offer shares for the second time or commonly referred to as secondary offerings. Then, what is meant by this secondary offering and its impact on investors? So, in order to be able to understand it further, take a look at the following reviews about the meaning of secondary offering, how it works, and its impact.
What Is Secondary Offering?
A secondary offering is a type of public offering the next company after an initial public offering or initial public offering. This second public offer can take 2 forms.
The first is that the company has already made its first public offering or IPO and re-issued new offered to investors. The goal is to get capital in the form of funds for business operational needs or other important things.
The second form is that the company’s shareholder will release most or the majority of its shares to the public. This is often done by companies that have entered a lock-up period at the time of the IPO.
The mechanism for this What Is Secondary Offering By Companies is basically not much different from an initial public offering, in which the company issues new shares without any pre emptive rights or preemptive rights, then offers. Therefore, the date of the offer must still be recorded because it is not using an ordering system.
The mechanism for this secondary offering is basically not much different from an initial public offering in which the company issues new shares without any pre emptive rights or preemptive rights, then offers, gives allotments, and so on. Therefore, the date of the offer must still be recorded because it is not using an ordering system.
Mechanism Of Secondary Offering
In practice, the secondary offering stage by issuers on the stock exchange is rarely carried out publicly. So, it is not surprising that many parties do not fully understand these activities.
When compared with the IPO, this second offering cannot create a dilution effect in which the share ownership of the shareholders does not increase or decrease because the total shares issued and outstanding in the market have not changed. Initially, this second offering had a maximum number of new share issuances of only 5 percent. However, the IDX provides an increase so that issuers can issue 10 percent of the shares as a maximum limit.
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2 Types Of Secondary Offering
There are 2 types of secondary offerings that are important to understand, including:
1. Dilutive Advance Offer
What Is Secondary Offering By Companies can occur as a result of dilution, which is when a company issues new shares and causes a decrease in the percentage of ownership of investors in the company. It also adversely affected its earnings per share.
This type of offering generally occurs when the board of directors agrees to increase the stock float so that there is more equity on the sale. The impact of this type of offering is a decrease in the share price on the dilution of income per share. Even so, the market can also not provide feedback in the form of unexpected reactions.
2. Non-Dilutive Continuation Offer
In this type of offering, there is no dilution of shares owned by shareholders. This could occur due to the absence of new shares issued.
Therefore, the company or issuer that issues shares may not benefit at all because the shares offered and sold to public investors are owned by venture capitalists and directors. The goal could be because the owner is planning to diversify it.
Secondary Offering Group
Follow-up offers can also be divided into 2 groups, namely :
1. Right Issue
A company making a follow-up offer can be seen as a rights issue and not an obligation for investors. From the company’s perspective, the purpose of the secondary offering is to pay off debt and expand business. Meanwhile, from an investor’s perspective, it is easier to liquidate their shareholdings.
The party entitled to this rights issue is the investor who holds the shares up to the cum date. This group of advanced offerings can be further divided into 2 types, namely rights issue rights and rights without rights issues.
For those with Preemptive Rights, offerings are usually made by companies so that retail investors can participate in the rights issue process.
Meanwhile, without the Pre emptive Rights, it is carried out for standby buyers and has been determined so that parties from large institutional groups cannot participate.
2. Private Placement
The company in the advanced offering process uses the offer and sells the new shares only to certain or private parties.
That’s why this group is referred to as a private placement or closed and is aimed at certain large institutions or institutions only. In other words, the public cannot participate in this offering.
How Secondary Offerings Work
As the name implies a secondary offering is a follow-up offering of shares made by a company that has previously conducted an IPO, after the IPO process is complete, investors can make.
What Is Secondary Offering By Companies to the public on the secondary market and capital market. Thus, the securities sold at the secondary offering are carried out by investors, sold to other investors through the capital market, and the process is directed to the seller.
In some cases, a company can also make a secondary offering, or it can be called a follow-up offer. This may raise capital to address debt, make acquisitions, or finance research and development of the company’s business.
In other cases, investors can inform the company they want to liquidate their shares, while other companies make follow-up offers to address debt when interest rates are low.
As an investor, you must be able to understand very well what the background of the company is doing this step in order to know the best investment steps that need to be taken.
Secondary Offering Impact
What Is Secondary Offering By Companies can have an impact on investor sentiment and the company’s share price. For example, investors may anticipate bad news when a large company sells a large portion of its stock.
An example of the case of a company’s stock price being affected by a secondary offering has occurred in Capri Holdings or CPRI. In its secondary offering, the company is offering 25 million shares. As a result, the company’s share price has decreased by more than 10 percent.
Dilutive follow-up offerings can also yield unexpected results, such as an increase in the company’s stock price. The reason is certainly not known for certain and is generally not clear.
Sometimes, investors think that a secondary offering is a step that can help the company’s business run smoothly. An easy example of course is the capital obtained from the offering is used to pay off debt, make acquisitions, or invest in the company’s future.
Make A More Right Investment Decision After Knowing The Meaning Of Secondary Offering
A secondary offering is a follow-up stock offering made by a company that has previously conducted an IPO. This secondary offering is done for various reasons and can affect the company’s stock price. Therefore, in order to be able to take the right investment steps, investors must understand what the background of the company is doing the secondary offering.
In some cases, a company can also make a secondary offering, or it can be called a follow-up offer. This may raise capital to address debt, make acquisitions, or finance research and development of the company’s business.