What is a seasoned equity offering?
A seasoned equity offering is when additional shares or bonds are offered for sale by an existing publicly traded company. It's usually made by an established business whose securities already trade on the secondary market.
Where have you heard about seasoned equity offerings?
There are two ways a company can raise extra capital – by taking on debt or selling equity. A blue-chip company might issue new shares to finance expansion plans, such as buying a new factory or taking on a major new project.
What you need to know about seasoned equity offerings.
Seasoned equity offerings are dealt with by investment banks acting as underwriters, similar to the way initial public offerings are handled. The difference is that it's easier to come up with a price for the secondary offering as it’s based on the current market price of the existing shares.
A seasoned issue can dilute the value of the existing shares significantly if it's offered by a company. Not surprisingly, this isn’t looked on too favourably by those who already own shares. Sometimes a company may let existing investors, such as a private equity firm, sell their shares. In such cases, the share count stays constant, so the value isn't diluted.