Chapter 5: The Stock Market
Rights Offer
A public issue of securities in which securities are first offered to existing shareholders (existing owners). It's also known as a "rights offering." Rights offerings are rare in the United States but common in other countries.
Initial Public Offering (IPO)
An IPO occurs when a company offers stock for sale to the public for thr first time. It's also known as an "unseasoned equity offering" because shares are not available to the public before the IPO. An IPO occurs in the primary market for common stock. All IPO offerings are cash offers.
General Cash Offer
An issue of securities offered for sale to the general public on a cash basis. These securities are offered on a first-come, first-served basis.
Primary Market & Secondary Market
In the primary, or new-issue, market, shares of stock are first brought to the market and sold to investors. In the secondary market, existing shares are traded among investors. In the primary market, companies issue new securities to raise money. In the secondary market, investors are constantly appraising the values of companies by buying and selling shares previously issued by these companies.
The goal of private equity firms.
The goal is to invest in a private company, improve its performance, and then exit the business with a profit. Existing the firm could be accomplished by selling to another investor. Typically, however, the preferred route is to sell the firm to the general public. *Private companies that do not have private equity investors might decide to raise additional capital by selling shares directly to the general investing public.
Stock Market
The market is where securities that have been sold to the public are traded. It consists of a primary and secondary market.
Leveraged Buyout (LBO)
The process of taking a company private by using borrowed money to purchase all the shares held by the public at large. Because the LBO market is dependent on borrowing money, it's activity level depends on credit market conditions.
Seasoned Equity Offering (SEO)
The sale of additional shares of stock by a company whose shares are already public. It's also known as a "secondary" or "follow on offering." A seasoned equity offering of common stock can be made using a general cash offer or a rights offer.
Venture Capital (VC)
The term "venture capital" does not have a precise meaning, but it generally refers financing for new, often high risk ventures. The VC market is an important part of the private equity market, and is similar to hedge funds in that they raise money from investors to invest in private companies.
