By Dennis McCarthy – (213) 222-8260 – firstname.lastname@example.org
Welcome to the Equity Series – Raising Equity for Small Cap Public Companies
This particular video addresses one way for a company to use a shelf registration to raise equity through what’s known as an “at the market” or “ATM” offering. Perhaps the more descriptive name is a “dribble out” offering.
A relatively newer form of offering, the ATM or “at the market” offering is becoming popular with companies which have sufficient stock trading volume and can accept the uncertainty of raising equity over time and at varying stock prices.
In an ATM offering, a company with an effective shelf registration engages a broker-dealer to sell its shares over time into the trading market without disrupting trading.
This type of offering works best when the planned sales are approximately 10% +/- of the stock’s average trading volume. So, companies with reasonably active trading volumes are the best candidates for an ATM.
Also, as I mentioned, the ATM works for companies which can take the risk of raising equity over time, such as companies with a capital need which is variable or manageable. A company using an ATM may defer sales of stock its stock dips below some threshold level but that cuts off the source of equity capital.
For an ATM, there is no special marketing effort required, no roadshow or big conference call. A company may continue its typical marketing activity and must maintain its regular periodic filings, annuals and quarterlies.
The commission cost which a company pays to its broker-dealer to sell securities is lower for ATMs, roughly half, the commission on the other types of registered offerings. There is an incremental cost to regularly produce legal opinions and accountant comfort letters but even with this extra cost, an ATM is typically less expensive.
For the trading desk handling the ATM offering, however, the ATM commission is higher than a typical trading commission so it’s an attractive form of offering for Wall Street trading desks.
Wall Street investors, however, are typically less enthusiastic about ATMs. Investors fear that securities offered through the ATM will satisfy new demand and prevent a stock from rising in price.
Limiting the offering size to a small portion of average trading volumes should reduce the practical negative impact but the investor fear remains.
Also, while a company’s management may be optimistic about its stock price rising over time, company management can’t influence all the factors driving the stock price.
If a company’s stock price falls in price during the ATM dribble out period, the average offering price reflects that price trend.
ATM’s are not for every company but may fit your capital need.
Please contact me to help your company to raise equity or to complete other capital market transactions.