Secondary Offering
A secondary offering is a sale of shares by an already public company or its existing shareholders after the initial public offering.
After a company goes public, it may sell more shares later. Such sales are called secondary offerings or follow-on offerings. They come in two main types.
In a dilutive offering, the company issues brand-new shares and receives the cash. This increases shares outstanding and reduces each existing shareholder's ownership percentage. Companies use the money for growth, acquisitions or paying down debt.
In a non-dilutive offering, existing large shareholders, such as founders, venture capital firms or private equity owners, sell their own shares to the public. The number of shares outstanding does not change, and the company does not receive the proceeds.
Secondary offerings are often priced at a small discount to the current market price to attract buyers, and the announcement frequently pushes the share price lower in the short term. Investors look at why the company is raising money and what it plans to do with it.
Example: a company with 100 million shares sells 10 million new shares at $30, raising $300 million before fees. Its share count rises to 110 million, and an investor who owned 1% now owns about 0.91%.