Secondary Offering

Secondary Offering

An IPO in which privately held shares in a corporation are sold to the public.

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secondary offering

See secondary distribution.

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Secondary offering. The most common form of secondary offering occurs when an investor, usually a corporation, but sometimes an individual, sells a large block of stock or other securities it has been holding in its portfolio to the public.

In a sale of this kind, all the profits go to the seller rather than the company that issued the securities in the first place. The seller usually pays all the commissions.

Secondary offerings can also originate with the issuing companies themselves. In these cases, a company issues additional shares of its stock, over and above those sold in its initial public offering (IPO), or it reissues shares that were issued and have been bought up by the company over time. Reissued shares are known as Treasury stock.

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Secondary Offering

What Does Secondary Offering Mean?

(1) The issuance of new stock for public sale from a company that already has made its initial public offering (IPO). Usually, this type of offering is made by companies that want to refinance or raise additional capital for growth. The money raised often goes to the company via the investment bank that underwrites the offering. Investment banks are given an allotment of the offering and possibly an overallotment that they can choose to exercise if they think they can make money on the spread between the allotment price and the selling price of the securities. (2) A sale of securities in which one or more major stockholders in a company sell all or a large portion of their holdings. The proceeds from this sale are paid to the selling stockholders. Often, the company that issued the shares holds a large percentage of the stocks it issues.

Investopedia explains Secondary Offering

(1) This sort of secondary public offering is a way for a company to increase outstanding stock and spread market capitalization (the company's value) over a greater number of shares. Secondary offerings in which new shares are underwritten and sold dilute the ownership position of existing stockholders. (2) Typically, this type of offering occurs when the founders of a business (and perhaps some of the original financial backers) determine that they would like to decrease their positions in the company. This kind of secondary offering is common after the initial offering (IPO) and after the termination of the lock-up period. Owners of closely held companies sell shares gradually so that the company's share price does not plummet as a result of high selling volume. This kind of offering does not increase the number of shares of stock on the market, and it is undertaken most commonly in the case of a company whose stock is thinly traded. Secondary offerings of this sort do not dilute the owners' holdings, and no new shares are released. There is no “new” underwriting process in this kind of offering.

Related Terms:
• Capital Structure
• Common Stock
• Dilution
• Initial Public Offering—IPO
• Shareholders' Equity