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 called an overnight offering.
In an overnight offering, a company with an effective shelf registration statement sells its securities overnight after the market has closed for the day with the plan to publicly announce the completed offering and file a supplement with the SEC, describing the overnight offering, early the next day.
Why would a company restrict its offering to one night?
Doing an overnight offering reduces the offering company’s risk that Wall Street will short a company’s stock depressing the stock price. Investors in an overnight offering agree to buy securities based on market price levels before the rest of Wall Street learns of the offering.
A disadvantage of an overnight offering is that the sales effort is generally highly limited, focused on current investors in the company’s stock because there is little time for marketing to new investors.
So, again we see a tradeoff, with an overnight offering, there’s little opportunity for Wall Street to short stock and depress the price but also little opportunity for the offering company to market the offering widely, especially to new investors.
Like a confidentially marketed public offering, some overnight offerings are shifted to a visible public offerings for a very short period, typically measured in hours, to permit the offering to add investors, perhaps investors not included in the overnight offering process.
Now, here’s a key practical suggestion. As I mentioned in my post, “How to get the Best Deal”, a company which needs to raise equity should plan ahead.
Planning ahead means that a company can conduct some “non-deal” marketing activities including roadshows and conference calls before it begins its overnight offering.
A company and its broker-dealer have to be careful not to disclose the contemplated offering during the “non-deal” marketing activities. However, these marketing activities can give a company considering an offering an opportunity to approach new potential investors as well a very good sense of the demand for its stock.
A “non-deal” roadshow or conference call may not get the broad investor attention as would a “deal” roadshow or call, but as this video series makes clear, there are tradeoffs to be considered when choosing a specific offering mechanism.
Please contact me to help your company to raise equity or complete other capital market projects.