What is 'Concession'

A concession is a selling group's take as per a stock or bond underwriting agreement. The calculation of compensation is the difference between what the public pays for the securities and what the issuing company receives from the sale based on a per-share of per-bond basis. Included in the underwriting spread is the management fee, selling concession, and underwriter's compensation.

BREAKING DOWN 'Concession'

When a publicly traded company wishes to raise capital by issuing stocks or bonds, it hires an investment bank to act as an underwriter and handle the transaction. The underwriter receives compensation for the securities it sells. An underwriter is not always responsible for the securities it does not sell, as outlined in the underwriting agreement.

Concessions can be involved in a variety of other transactions based on adjustments to the price in a trade. Adjustments can include changes to the purchase price due to inaccurate valuation and compensation to a third party involved in administering the transaction. Market changes and faulty data may cause inaccurate valuation.

Concession Agreement

A concession agreement will become part of the deal when concessions are a necessary part of the transaction. The document, like other forms of contracts, serves as a legally binding agreement between the two undersigned parties. The concession agreement contains the details upon which the concessions will or will not take place.

Various Definitions of Concessions

As it relates to the finance industry, a concession may be present during the sale or acquisition of assets. The purchasing company may attempt to adjust the price based on the resources required to maintain the assets. If the adjustment is permitted and becomes part of the transaction's official agreement, it is a concession.

One ordinary transaction that often includes such concessions involves the purchase or sale of real estate. Real estate concessions are typical in the residential marketplace. In this scenario, both buyers and sellers may negotiate concessions, such as a change in the sale price of the property based on a change in valuation (e.g., repairs identified by home inspection), or the addition of assets not previously listed in the negotiation (e.g., the inclusion of appliances).

Lastly, concessions most notably occur in locations like shopping centers, theaters, and sporting arenas. The vendors, as part of the rental agreement, often owe concessions to the building owner that go beyond the traditional rental fee. Most commonly, these concessions require the vendor to pay the building owner a certain percentage of all sales that take place within the facility.

RELATED TERMS
  1. Underwriting Spread

    An underwriting spread is the difference between what underwriters ...
  2. Selling Group

    A selling group comprises all financial institutions involved ...
  3. Underwriting Agreement

    An underwriting agreement is a contract between a group of investment ...
  4. Standby Underwriting

    Standby underwriting is an IPO sales agreement in which the underwriter ...
  5. Lead Underwriter

    A lead underwriter is usually an investment bank that organizes ...
  6. Eating Stock

    Eating stock refers to the forced purchase of a security when ...
Related Articles
  1. Investing

    EU Set to Approve Microsoft, LinkedIn Deal (MSFT, LNKD)

    Microsoft's $26.2 billion blockbuster deal for LinkedIn could be green-lighted soon.
  2. Investing

    U.S. Tech Firms' $150B China Revenue At Risk in Trade War

    President Trump is more likely to seek trade concessions with China than hurting tech trade with the country.
  3. Insurance

    What is Underwriting?

    Underwriting is a term most often used in investment banking, insurance and commercial banking. Generally, underwriting means receiving a remuneration for the willingness to pay for or incur ...
  4. Insurance

    Accelerated Underwriting Makes Life Insurance Easy

    A new development called “accelerated underwriting” is making it faster and easier for people to obtain life insurance.
  5. Insurance

    What Prequalification and Underwriting Do

    Learn now prequalification and underwriting can help you buy the policy that best meets your needs.
  6. Insurance

    Common Life Insurance Questions Answered

    Choosing life insurance can seem daunting at first. Here are answers to commonly asked questions.
  7. Trading

    Greenshoe Options: An IPO's Best Friend

    Greenshoe clauses can be contained in the underwriting agreement of an IPO. Find out how companies can boost their initial public offering price with these little-known options.
  8. Insights

    Game Theory And The Greece Bank Crisis

    How can game theory help us understand how the Greece bank crisis will play out? As things come to a head, Greece and the Europeans are trying to hold out.
  9. Insurance

    Answers to High-Risk Life Insurance Questions

    Do you have questions about obtaining life insurance if you are considered higher risk?
RELATED FAQS
  1. What does the underwriter do in a new stock offering?

    Learn the role an underwriter plays for an initial public offering, and the steps an underwriter takes in preparing for an ... Read Answer >>
  2. How do I become an underwriter?

    Learn about the education, training and certification required to become an insurance underwriter and the important qualities ... Read Answer >>
Trading Center