Subsequent offerings: Overview, definition, and example
What are subsequent offerings?
Subsequent offerings refer to the issuance of additional securities or financial products after the initial offering, typically by a company or organization. These offerings can include the sale of additional shares, bonds, or other investment products to the public or to a specific group of investors. Subsequent offerings often occur after a company’s initial public offering (IPO) or initial bond issuance and are made to raise additional capital, expand the investor base, or finance specific business activities or projects.
Subsequent offerings can take different forms, including secondary offerings (where existing shareholders sell shares), follow-on offerings (where the company issues more shares), or private placements (where securities are sold to a select group of investors).
Why are subsequent offerings important?
Subsequent offerings are important because they allow businesses to raise additional capital to fund growth, acquisitions, or other operational needs. They can also help companies strengthen their balance sheets, pay off debt, or invest in new projects or product lines.
For investors, subsequent offerings present opportunities to purchase additional securities, sometimes at a discount or under favorable terms. However, these offerings can also dilute the value of existing shares or investments, which is a potential risk for those holding securities prior to the offering.
Understanding subsequent offerings through an example
Imagine a technology company that recently went public with an IPO and raised $50 million. After a year of rapid growth, the company decides to raise additional funds for an expansion project. It issues a subsequent offering of new shares to the public to raise another $30 million. This offering allows the company to continue expanding, but investors who previously held shares may see their ownership percentage diluted as new shares are issued.
In another example, a company may issue bonds as part of its initial offering to raise capital for a new product line. If the product line is successful and the company needs more capital to scale, it might launch a subsequent bond offering to raise additional funds without diluting ownership.
Example of subsequent offerings clause
Here’s what a subsequent offerings clause might look like in a contract:
“The Company agrees that, for a period of [X] months after the closing of the Initial Public Offering, it will not conduct any subsequent offerings of shares without the consent of [specified party], except for an offering in connection with an employee stock option plan, or a follow-on offering to raise capital for the Company’s general corporate purposes.”
Conclusion
Subsequent offerings play a critical role in enabling businesses to raise additional capital after the initial offering. They provide a means for companies to continue growing, investing, or expanding, while also offering new opportunities for investors to buy securities.
However, subsequent offerings can affect the value of existing investments, so it’s important for investors to carefully consider the potential impact of such offerings on their holdings. For businesses, understanding how and when to conduct subsequent offerings is crucial for managing capital needs and maintaining shareholder value.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.