Secondary offering

A secondary offering is a registered sale of an already public company's shares by existing holders, such as founders, venture capital or private equity firms, rather than by the company itself. Because the shares already exist, a pure secondary offering does not increase the share count or raise money for the company.

How it works

The selling holders and the company arrange the sale with underwriters, usually off a shelf registration with a prospectus supplement naming the selling stockholders. Deals are often launched after the close and priced overnight at a discount to the last price. Large holders sometimes sell in an unregistered block trade to a bank instead, or the company may buy back part of the offering concurrently.

In everyday market language, "secondary offering" is also used loosely for any follow-on offering, including primary sales of new shares. The prospectus states whether the company, selling stockholders or both are selling, and who receives the proceeds.

Why it matters for traders

The distinction matters. A primary offering dilutes holders; a pure secondary does not, but it still adds supply and often signals that a well-informed holder wants out. Private equity sponsors exiting in stages after an IPO commonly run a series of secondaries, each typically pressuring the stock for a day or two. Watch the size relative to average daily volume and float, the discount, and whether insiders or the sponsor are selling. Secondaries often follow lock-up expirations or come with an early lock-up release.

Example

Hypothetical Northwind Foods (NWFD) has 100 million shares outstanding at $40. Its private equity owner sells 8 million shares in an overnight secondary at $38, a 5% discount, receiving $304 million. NWFD's share count stays at 100 million and the company receives nothing, but the stock opens at $38.40 the next morning.

FAQ

Is a secondary offering dilutive?

A pure secondary is not, because no new shares are created. If the deal includes newly issued primary shares, that portion is dilutive.

Why do stocks drop on secondary offerings?

The sale adds a large block of supply at a discount, and investors may read a big holder's exit as a negative signal.