Definition
An additional sale of shares after a company is already public.
Why it’s relevant today
Companies use follow-on offerings to fund expansion or strengthen balance sheets.
Why it matters
New issuance can raise cash while diluting existing owners.
I had not heard of this term before today. I wonder how previous investors feel about companies when they have secondary offerings, what does this signify as a whole and what are the positive and negative situations that this arises in?
Great question. A secondary offering can be either positive or negative depending on who is selling the shares and why.
Positive: If the company issues new shares to raise money, it gets cash to invest in growth, pay down debt, or strengthen its balance sheet.
Negative: Existing shareholders can be diluted because there are now more shares outstanding.
If existing investors/insiders are selling their own shares, the company doesn’t receive the cash (the selling shareholders do). That can sometimes signal that insiders want to reduce their ownership, although there can be many reasons for selling.
The key question to ask is: “Who is receiving the cash, and what are they doing with it?”