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Small cap companies are increasingly using the “at the market” or ATM offering as a means to raise capital in response to a volatile and unpredictable stock market environment.
An “at the market” offering enables a company to take advantage of a receptive stock market to raise capital either by dribbling out its shares over time or by doing a large offering.
How does a corporate “at the market” offering work? First, the requirements:
In order to create a corporate ATM, a public company must be traded on NASDAQ or one of the exchanges, NYSE, AMEX, etc.
These public companies can register shares for future sale by filing an SEC “shelf” offering. This “shelf” permits a company to sell its shares in the future whenever it wishes either by “dribbling out” its shares or by selling them all at once.
The shares sold are fully registered so the buyer can resell them whenever it wishes which expands the universe of potential investors and reduces the liquidity risk.
In a typical corporate ATM, the company picks an investment bank (or banks) to be its agent in selling the shares over time.
The shares are sold “at the market” less a small agent fee.
The company determines the timing and amount of shares to be sold constrained only by what the market will accept.
In theory, the shares are sold to long-term holders but there’s no guarantee.
Let’s compare this with an equity line which is another increasingly common means to raise equity over time.
In an equity line, like a corporate ATM, a company files a registration statement for its planned share sales.
In the equity line, however, the company selects an investor to buy the shares. There is no agent or agent fee.
This investor, however, will structure the relationship with the company to limit the investor’s risk.
This typically means that the investor will price the shares at a healthy discount to market and may add warrants to sweeten its return.
Also, the investor typically limits the amount of shares it will purchase at any one time.
An equity line investor is typically not a long-term holder but rather intends to resell the shares at a profit. Stock market fear of this resale volume has been blamed for depressing an equity line company’s stock price and has slowed the growth of this type of offering.
In contrast, as companies come to learn about the advantages of an “at the market” offering, its use is growing.
If you have any questions about “at the market” or other types of offerings, please contact me.
firstname.lastname@example.org or email@example.com