Initial Public Offering

An initial public offering or “IPO” is the first offering of stock by a company to the public. By completing an IPO, the once previously private company will become publically traded, subjecting it to additional regulatory pressures and costs but also allowing it greater access to the capital markets. A successful IPO will raise a large amount of money for the issuing company, which can be used for growth initiatives. By completing an IPO, the company will oftentimes receive better rates on its debt issuances due to increased transparency of the firm, making further funding less costly.

Secondary Offering

A secondary offering occurs when a publicly traded company issues additional shares to the public. This can be done in order to raise additional funds for growth or to accomplish a refinancing. Secondary offerings may cause share prices to decrease as more shares of the company’s stock are now available on the market. Another form of secondary offering occurs when founders of a business would like to decrease their ownership positions in the company. This type of secondary offering is usually done over time as to not exert too much downward pressure on the company’s share price as a result of the increased selling volume. This type of secondary offering does not dilute current owners’ holdings in the company unlike secondary offerings in which additional shares are issued.