Secondary Offering

A secondary offering is the sale of already existing shares by existing shareholders in the market. Unlike in a capital increase, the money does not flow to the company, but to the selling shareholders.

Typical sellers are financial sponsors after an IPO lock-up expires, founding families and anchor shareholders reducing their stakes. Despite the absence of proceeds for the company, the transaction matters to it, because it increases the free float, improves liquidity in the share and changes the shareholder base. In the short term, however, a larger supply weighs on the price. For financial sponsors the secondary offering is the actual exit after a listing, regularly executed in several steps because selling out at once would depress the price too heavily.

A distinction should be drawn between a placement by existing shareholders, where no money reaches the company, and a capital increase issuing new shares. The two are often combined, so part of the proceeds goes to the company and part to the selling shareholders.

Technically the placement is executed either as an accelerated bookbuild with institutional investors within a few hours, usually at a discount of a few percent to the closing price, or as a fully marketed offering with a prospectus. After an IPO, lock-up periods restrict when such placements can occur. What matters for the share price is the size of the placement relative to average trading volume, because an oversized offering weighs on the price for weeks.