Secondary Offering

Loading the player...

What is a 'Secondary Offering'

1. The issuance of new stock for public sale from a company that has already made its initial public offering (IPO). Usually, these kinds of public offerings are made by companies wishing to refinance, or raise capital for growth. Money raised from these kinds of secondary offerings goes to the company, through the investment bank that underwrites the offering. Investment banks are issued an allotment, and possibly an overallotment which they may choose to exercise if there is a strong possibility of making 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 of this sale are paid to the stockholders that sell their shares. Often, the company that issued the shares holds a large percentage of the stocks it issues.

BREAKING DOWN '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 stockholders who own shares that were issued in the IPO.

2. Typically, such an 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 in the years following an IPO, after the termination of the lock-up period. Owners of closely held companies sell shares to loosen their position - usually gradually, so that the company's share price doesn't 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 most commonly performed in the case of a company that is very thinly traded. Secondary offerings of this sort do not dilute owners' holdings, and no new shares are released. There is no "new" underwriting process in this kind of offering.

RELATED TERMS
  1. Impact Day

    The date on which a corporation makes a secondary offering of ...
  2. Open Offer

    A secondary market offering that is similar to a rights issue ...
  3. Primary Offering

    The first of issuance of stock for public sale from a private ...
  4. Subsequent Offering

    An offering of additional shares after the issuing company has ...
  5. Offering

    The issue or sale of a security by a company. It is often used ...
  6. Lead Underwriter

    A investment bank or other financial outfit that has the primary ...
Related Articles
  1. Investing

    What's a Secondary Offering?

    A secondary offering is the issuance of new stock from a company that has already made its initial public offering.
  2. Trading

    Comparing Primary And Secondary Capital Markets

    In the primary capital market, investors buy directly from the issuing company. In the secondary market, investors trade securities among themselves.
  3. Investing

    What is the Secondary Market?

    The secondary market is where investors purchase securities or assets from other investors, rather than from the issuing companies themselves.
  4. Markets

    Why Do Companies Care About Their Stock Prices?

    Read on to learn more about the nature of stocks and the true meaning of ownership.
  5. Trading

    Adjusting Price Charts To Secondary Offerings

    Secondary offerings may require rapid readjustment of trading strategies.
  6. Investing

    How An IPO Is Valued

    The initial valuation of an IPO can determine the success or failure of a specific stock - but how is that price determined?
  7. Managing Wealth

    The Dangers Of Share Dilution

    Share dilution reduces the value of an individual investment and can drastically impact a portfolio.
  8. Investing

    What is a Public Company?

    A public company has sold stock to the public through an initial public offering (IPO) and that stock is currently traded on a public stock exchange.
  9. Investing

    The Ups And Downs Of Initial Public Offerings

    Initial public offerings aren't the best option for every company. Consider these factors before "going public."
  10. Trading

    IPO Flippers And The Companies Who Hate Them (TWTR, ETSY)

    Learn how flipping activity affects an initial public offering.
RELATED FAQS
  1. What is the difference between an IPO and a seasoned issue?

    Learn how companies issue IPO securities when they first go public and seasoned issue shares if they sell more shares in ... Read Answer >>
  2. Why do share prices fall after a company has a secondary offering?

    The best way to answer this question is to provide a simple illustration of what happens when a company increases the number ... Read Answer >>
  3. What's the difference between primary and secondary capital markets?

    Learn how in the primary capital market, securities are issued for the first time, while in the secondary market, investors ... Read Answer >>
  4. After an initial public offering, does a company profit from increases in its share ...

    The short answer is "no". To understand why, recall that the stock market is actually comprised of two markets - a primary ... Read Answer >>
  5. Who trades in primary and secondary capital markets?

    Understand how primary and secondary markets function in the trade of financial securities between investors, and learn how ... Read Answer >>
  6. What does 'going public' mean?

    Going public refers to a private company's initial public offering (IPO), thus becoming a publicly traded and owned entity. ... Read Answer >>
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center