What is a Seasoned Equity Offering (SEO)?
A Seasoned Equity Offering (also called a Follow On Offering) refers to any issuance of shares that follows a company’s Initial Public Offering (IPO) on the stock market. The issuance, therefore, is by a company that is already public and is coming back to the market to raise more money.
Reasons for a Seasoned Equity Offering
There are many reasons for companies to have follow on offerings after they are already public.
- Raise new money to fund operations
- Grow the business
- Buy new equipment and machinery
- Purchase land or buildings
- Pay down debt
- Make mergers and acquisitions (M&A)
- Recapitalize the business
- Increase working capital
Follow On Offering vs Secondary Offering
A Seasoned Equity Offering is any issuance of shares to the public post-IPO, whereas a Secondary Offering is the sale of shares from existing shareholders. An IPO and a Follow On Offering can both consist of Primary Offerings (shares sold by the company) and Secondary Offerings (shares sold by existing shareholders). While these two terms are sometimes used interchangeably, they are in fact different things.
A Seasoned Offering and a Follow On Offering are the same thing.
Seasoned Equity Offering Example
On April 13, 2009, Goldman Sachs (NYSE:GS) completed a $5 billion follow-on equity offering. Being an investment bank themselves, they were their own sole underwriter on the transaction. In their press release, they stated the use of proceeds as being to redeem all of the Troubled Assets Relief Program (TARP) capital they had received from the government.
Because Goldman Sachs was already public (it had its IPO in 1999), the issuance of these additional shares constituted a seasoned equity offering.
Read more from the press release here.
Dilutive vs Non-Dilutive Offerings
Dilution in ownership occurs when a company increases the number of shares outstanding. Unless existing investors participate in buying the new shares, their pro rata ownership will decrease because they still own the same number of shares, but their equity interest now represents a smaller percentage of the total shares available.
Secondary offerings are not dilutive to existing shareholders, as the total share count stays the same (they sell directly to each other).
Primary offerings are dilutive because new shares are issued by the company.
An IPO or a seasoned equity offering can be either dilutive and non-dilutive, depending on whether they consist of primary and/or secondary components.
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