Secondary Offering

The term covers two different situations. In a primary secondary offering, sometimes called a follow-on offering, the company issues new shares to raise more money. In a non-dilutive secondary offering, existing shareholders, such as founders, early investors or private equity owners, sell some of their shares to the public, and the money goes to them rather than to the company.

When a company issues new shares, existing shareholders' ownership is diluted. For example, if a company with 100 million shares issues another 10 million, an investor who owned 1% now owns about 0.91%. Share prices often fall when a dilutive offering is announced.

When existing shareholders sell, the number of shares does not change, so there is no dilution. However, the market may interpret large sales by insiders as a sign they think the shares are fully valued.

Companies use secondary offerings to fund expansion, acquisitions or debt repayment. Investors watch them because they can affect the share price and reveal how insiders see the company's prospects.