Placing

What is Placing?

Placing refers to the sale of a company’s shares to chosen individuals or institutions without making a public offering on the open market. This method can either be used for initial public offerings (IPOs) or for generating additional capital for already listed companies. Placings are generally preferred for their cost-efficiency compared to other modes of raising capital, and they also allow corporate directors to have a say in selecting shareholders.

Key Attributes:

• Selective Offering: Only selected investors are approached.
• Cost-Efficiency: Typically cheaper than a public offering.
• Control Over Shareholders: Directors influence the choice of new shareholders.
• Stockbroker’s Role: Success often depends on the stockbroker’s ability to place shares with the right investors.

Examples

1. Flotation: A tech startup decides to go public and opts for placing its shares with leading venture capital firms and institutional investors, ensuring both long-term support and rapid capital influx.
2. Raising Additional Capital: An established pharmaceutical company needs funds for a new project and chooses a placing to offer new shares to its existing large investors for swift and less expensive capital accumulation.

Frequently Asked Questions

1. How does placing differ from a public offering?

• A placing involves selling shares to a selective group of investors, whereas a public offering makes shares available to the general public.

2. Can placing offer shares to retail investors?

• Typically, placings target institutional investors or high-net-worth individuals, though placements can sometimes be extended to retail investors through private arrangements or secondary offerings.

3. What are pre-emption rights in relation to placing?

• Pre-emption rights give existing shareholders the first option to buy new shares before the company offers them to new investors, often safeguarding their current holdings from dilution.

4. Why are placings considered cost-efficient?

• Placings avoid some of the extensive marketing and underwriting fees associated with public offerings, reducing overall costs.

5. What’s the role of a stockbroker in a placing?

• A stockbroker identifies and approaches potential investors, facilitating negotiations and maximizing the success of the share sale.

6. Are there regulatory approvals needed for placing?

• Yes, companies must adhere to regulatory frameworks and obtain necessary approvals from financial authorities in their jurisdiction.

7. How do directors influence the selection of shareholders in placing?

• Through strategic decisions, directors can target specific investors who align with the company’s long-term goals, maintaining a balanced and supportive shareholder base.

8. What is a public placing versus placement in the USA?

• A public placing refers to the commitment of shares to public investors, sometimes broader than typical placements. In the USA, the term ‘placement’ is broadly used for both private and public contexts.

9. Can companies use placing to gain strategic investors?

• Yes, strategically targeting investors who can bring value beyond capital, such as industry expertise and networking opportunities.

10. Are there any risks associated with placing shares?

• Risks include potential undervaluation and excessive dilution of existing shareholders’ equity if not executed prudently.

Related Terms

• Flotation: The process of a company releasing shares to the public for the first time.
• Pre-emption rights: The rights offering existing shareholders the opportunity to purchase new shares before the new shares are offered to new investors.
• Rights issue: Offering new shares to existing shareholders proportional to their current holdings.
• Stock exchange: A marketplace for buying and selling shares and other securities.
• Introduction: A method of listing shares on a stock exchange without raising capital.
• Offer for sale: Shares are sold to the public by a third party, often existing shareholders.

Online References

• Investopedia - Initial Public Offering (IPO)
• The Corporate Finance Institute – Placing
• London Stock Exchange – Placings
• Securities and Exchange Commission – Guide to Secondary Market Offerings

Suggested Books for Further Studies

• “The Art of Raising Capital: How to Bootstrap, Fund, or Plan Your New Business” by Michael Allen
• “Investment Banking: Valuation, Leveraged Buyouts, and Mergers and Acquisitions” by Joshua Rosenbaum and Joshua Pearl
• “Principles of Corporate Finance” by Richard A. Brealey and Stewart C. Myers

Accounting Basics: “Placing” Fundamentals Quiz

Thank you for exploring the concept of placing and participating in our comprehensive quiz to test your understanding. Keep advancing your financial acumen!