For publicly traded companies looking to raise capital, At-the-Market (ATM) equity offerings have become an increasingly popular financing method. An ATM offering allows a company to sell its common stock over time into the secondary trading market at prevailing market prices, rather than through a traditional underwritten offering. This flexible approach to equity financing provides several advantages for issuers.
How ATM Offerings Work
In an ATM offering, the company enters into an equity distribution agreement with one or more broker-dealers, known as agents or sales agents. The company can then periodically instruct the sales agents to sell newly issued shares on the open market. The sales are made through an issuer's existing trading market for its common stock. The shares are sold at the prevailing market prices at the time of each sale, unlike a traditional offering where shares are sold at a fixed price. The company works with the sales agents to determine parameters such as the maximum number of shares to be sold, a minimum sale price, and other guidelines. One key benefit is that the company can raise capital opportunistically when its stock price and market conditions are favorable. Sales can occur through various methods, including ordinary brokers' transactions, or in negotiated transactions with the broker-dealers.
Use Cases and Advantages of ATM Offerings
ATM offerings have been used by companies across industries and sizes to raise capital in a flexible manner aligned with their financing needs. ATMs can provide a low-cost way to raise smaller amounts of capital compared to larger share offerings. They enable issuers to match their equity needs with favorable windows while minimizing excessive dilution. For issuers, key advantages of ATM equity programs include:
Flexibility: Issuers can opportunistically raise capital over time in amounts aligned with their needs versus a larger, riskier offering.
Cost Efficiency: ATMs may have lower cost and fees compared to a traditional underwritten deal.
Price Minimization: Selling at current trading prices may result in higher prices versus a discounted deal.
Reduced Dilution: Incrementally raising capital can minimize shareholder dilution.
Market Impact: Periodic issuances have less market impact than a larger secondary offering.
For investors, ATMs provide an opportunity to invest in companies gradually building their equity base aligned with their business strategies and capital needs.
Mechanics and Reporting of ATM Offerings
There are certain mechanics and reporting requirements that companies must follow when conducting an ATM equity offering program:
Equity Distribution Agreements: The company enters into what is known as an equity distribution agreement with one or more broker-dealers that will act as sales agents. This agreement governs the ATM offering parameters such as the maximum number of shares to be sold, minimum pricing rules, transaction instructions, compensation for the sales agents, and other legal provisions.
Shelf Registration Statement: To conduct an ATM offering, the company must have a valid shelf registration statement on file with the SEC. The shelf allows the company to incorporate regularly filed periodic reports rather than having to prepare and re-file a new prospectus for each capital raise.
Prospectus Supplements: When the company actually wants to initiate an ATM offering, it must file a prospectus supplement with the SEC providing details on the offering. This outlines the specific terms such as the sales agents, amount being raised, use of proceeds and other material information for investors.
Periodic ATM Updates: During the course of the ATM program, the company provides regular updates on its ATM activity through its quarterly/annual SEC filings. This may include the number of shares sold, average prices, net proceeds raised, and updated prospectus details if raising more than the original amount.
Blackout Periods: There are limitations on when companies can sell shares through an ATM program. They cannot sell during quarterly "blackout" periods leading up to their earnings releases, or when they have material non-public information that could impact the stock price.
Balancing Issuances: Companies try to balance consistent ATM issuances with potential market impact. An accelerated burst of stock sales can weigh on the stock. However, issuing too gradually extends the risk period. Working closely with their sales agents, they aim for a measured, opportunistic approach.
While the mechanics of an ATM offering involve more periodic work, they provide a useful option for companies to access the equity markets in a controlled, low-friction manner aligned with their evolving financing needs.
Risks and Considerations
ATM offerings are subject to market risk, meaning issuers incur reinvestment risk if unable to sell shares at attractive prices during the offering period. Shareholder dilution can still occur depending on the total amount raised.
Overall, ATM equity offerings have become an established financing approach for publicly-traded companies to raise capital through a flexible, opportunistic method. For investors, they provide a means to participate in a company's growth in a measured way.
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