Secondary Offering
A secondary offering is a sale of securities that are already issued and outstanding. The selling shareholder(s) receive the proceeds, NOT the issuer.
Secondary Offering vs Follow-On Offering
| Feature | Secondary Offering | Follow-on (Additional Primary) Offering |
|---|---|---|
| Who sells | Existing shareholders | The issuing company |
| Who receives proceeds | Selling shareholders | The issuer |
| New shares created? | No - existing shares resold | Yes - new shares issued |
| Dilutive? | No | Yes - increases total shares outstanding |
| Also called | Secondary distribution | Seasoned equity offering (SEO), additional primary offering |
- Common sellers in secondary offerings: founders, venture capitalists, private equity firms, or other large shareholders
- The company does NOT receive money from a secondary offering
Exam Tip: Gotchas
"Secondary offering" does NOT mean "second offering by a company." It means existing shareholders are selling their shares. When a company that is already public issues NEW shares to raise capital, that is a "follow-on offering" or "additional primary offering." The exam frequently tests who receives the proceeds.
Key Distinction: Dilutive vs Non-Dilutive
- Follow-on (primary) offering = new shares created; company receives proceeds; dilutive to existing shareholders
- Secondary offering = existing shares sold; selling shareholders receive proceeds; not dilutive because no new shares are created
Combined Offerings
- An offering may include BOTH a primary component (new shares from the issuer) and a secondary component (existing shares from selling shareholders)
- The prospectus will disclose the breakdown and which parties receive proceeds
Think of it this way: In a primary (dilutive) offering, the company is creating new shares and getting the money. In a secondary (non-dilutive) offering, existing shareholders are selling their shares and pocketing the cash. The company gets nothing in a secondary offering, but shareholders can cash out.