How to Offer Stocks
The desire for growth and expansion forces most medium to large scale organizations to offer company stocks to the public and raise financing for new projects. The first stock offering by a company is made through an initial public offering (IPO). However, companies that are already publicly traded can more easily issue stock to the market, since their stock price has already been established by the market. The stock offering involves the company as the issuer, an investment bank as the originator and the investors who purchase the stock offering. The investment bank is known as the originator, since it prepares and distributes the stock offering.
Other People Are Reading
Instructions
-
-
1
Evaluate business performance and growth opportunities available to the company. The stock offering should only be made if the company can invest in projects that can offer market-equivalent, risk-adjusted returns or higher. For example, if a company has an investment project that offers 18 percent return when the market offers a return of 12 percent on similar risk projects, the project is considered worth pursuing.
-
2
Estimate the amount of capital required for a project that needs to be met with equity finance. For example, suppose the project cost is $100 million and the company intends to raise $40 million through the stock offering.
-
-
3
Prepare an in-house document containing the proposal details pertaining to the stock offering and submit the proposal to selected investment banks that have the required expertise to handle a stock offering in your particular industry.
-
4
Select an investment bank that is interested in originating the stock offering for your company. The best investment bank is not always the one that offers the lowest price; consider the level of industry expertise during the selection process.
-
5
Finalize the underwriting terms and conditions with your investment bank.
Underwriting is a process that guarantees the sale of all your stock at a selected minimum price. The investment banks that underwrite stocks generally charge an underwriting fee and guarantee to purchase any unsold stock. Depending on the risk profile of your company, an investment bank may or may not offer the underwriting services.
-
6
Compile the stock offering prospectus with the help of the selected investment bank. The prospectus is a document that list all the details of the stock offering that can help investors make a decision to invest in the company. The investment bank experts will help originate the issue by fulfilling all legal requirements and obtaining independent valuation for the proposed project.
-
7
Market the stock offering in consultation with the guidelines provided by your investment bank. A large portion of your stock offering may be purchased by the investment bank and its designated investors at a discount.
-
1
References
Resources
- Photo Credit sharing a cup of coffee image by Peter Baxter from Fotolia.com
