What Is the Takedown?

The takedown is jargon for the initial price of a stock, bond, or other security when it is first offered in the open market. The takedown will be a factor in determining the spread or commission underwriters will receive once the public has purchased securities from them.

A full takedown will be received by members of an investment banking syndicate who have underwritten public offerings securities. Dealers outside of the syndicate receive a portion of the takedown while the remaining balance remains with the syndicate.

Key Takeaways

  • The takedown refers to the price offered to the public for s new issue of securities.
  • The takedown price will influence the fees that underwriters will receive once they have sold the new securities to the public.
  • Alternatively, in a shelf offering, the underwriters will "take down securities off the shelf", allowing a company to earn proceeds from the sale of an issue over time.

Understanding the Takedown

When a company offers new issues, such as publicly traded stocks or bonds, it will hire an underwriter, such as an investment banking syndicate, to oversee the process of bringing those new issues to market. The members of the syndicate take on most of the risk inherent in bringing new securities offerings to market, and in return, they receive a majority of the profit generated from the sale of each share.

The spread or commission of a given offering refers to the initial profit made from its sale. Once it’s sold, the spread has to be divided up among the syndicate members or other salespeople responsible for selling it. The syndicate will typically divide the spread into the takedown and the manager’s fee.

In this instance, "the takedown" refers to the profit generated by a syndicate member from the sale of an offering, and the manager’s fee will typically represent a much smaller fraction of the spread. For example, if the takedown is $2, the manager’s fee may be $0.30, so the total takedown paid to the syndicate members is $1.70. This is because the syndicate members have fronted money to purchase the securities themselves, and therefore assume more risk from the sale of the offering.

Other fees may also be taken out of the takedown. For example, a concession may be paid to members of a selling group who have not fronted money to purchase shares to sell to the public. A profit made by syndicate members on sales of this nature is known as an additional takedown.

Shelf Offerings

In a shelf offering, underwriters essentially take down securities off the shelf. A shelf offering allows a company to generate money from the sale of a stock over time. For example, if Company A has already issued some common stock, but it wants to issue more stock in order to generate some money to expand, update equipment, or fund other expenses, a shelf offering allows it to issue a new series of stock that offers different dividends to stockholders. Company A is then said to be "taking down" this stock offering "off the shelf".

The Securities and Exchange Commission (SEC) lets companies register shelf offerings for up to three years. This means that if Company A registered a shelf offering for three years in advance, it would have three years to sell the shares. If it doesn't sell the shares within the allotted time, it can extend the offering period by filing replacement registration statements.