When a company wants to raise new money from shareholders it has a choice about how it goes about doing so. One option is an offer for sale to all potential shareholders, institutional and private. This takes time to organise as the regulations are quite strict and there are potentially many application forms to process. There is also some uncertainty about whether retail investors will commit to buy new shares. So unless a firm has a good reason to do it a football club wanting to offer shares to fans, for example most firms go for a placing instead.
This is where selected institutions are phoned by a firm's advising investment bank and offered blocks of shares they are quite literally placed'. This is usually a quicker and cheaper way to raise the same funds. As part of a placing, the advising bank will often organise a roadshow', where it visits the biggest potential investors (pension funds, for example) to market the new shares.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
-
'Invest in the water companies that keep the global economy going'Opinion Saurabh Sharma, fund manager, Regnan Sustainable Water and Waste strategy, highlights three water companies where he'd put his money
-
Electronic Arts: a winning game groupElectronic Arts is a fast-growing video-game maker which looks set for further success
