What is Offering
An offering is the issue or sale of a security by a company. It is often used in reference to an initial public offering (IPO) when a company's stock is made available for purchase by the public, but it can also be used in the context of a bond issue.
BREAKING DOWN Offering
Usually, a company will make an offering of stock or bonds to the public in an attempt to raise capital to invest in expansion or growth. There are instances of companies offering stock or bonds because of liquidity issues (i.e. not enough cash to pay the bills), but investors should be wary of any offering of this type.
When a company initiates the IPO process, a very specific set of events occurs. First, an external IPO team is formed, consisting of an underwriter, lawyers, certified public accountants (CPAs) and Securities and Exchange Commission (SEC) experts. Next, information regarding the company is compiled, including financial performance and expected future operations. This becomes part of the company prospectus, which is circulated for review. The financial statements are then submitted for official audit, and the company files its prospectus with the SEC and sets a date for the offering.
IPOs, as well as any other type of stock or bond offering, can be a risky investment. For the individual investor, it is tough to predict what the stock will do on its initial day of trading, and in the near future, there is often little historical data to use to analyze the company. Also, most IPOs are for companies that are going through a transitory growth period, which means that they are subject to additional uncertainty regarding their future values.
IPO underwriters work closely with the issuing body to ensure an offering goes well. Their goal is to ensure that all regulatory requirements are satisfied, and they are also responsible for contacting a large network of investment organizations in order to research the offering and gauge interest to set the price. The amount of interest received helps an underwriter set the offering price. The underwriter also guarantees a specific number of shares will be sold at that initial price and will purchase any surplus.
A secondary market offering is a large block of a securities offered for public sale that have been previously issued to the public. The blocks being offered may have been held by large investors or institutions, and proceeds of the sale go to those holders, not the issuing company. Also called secondary distribution, these types of offerings are very different than initial public offerings and don't required nearly the same amount of background work.