At-the-Market (ATM) Offerings

At-the-Market (ATM) Offerings | Andrew Abramowitz, PLLCBloomberg Law’s Corporate Transactions Blog recently posted an item entitled “At the Market Offerings are Again Wildly Popular.” (I should note that I am in favor of trying to spice up securities law articles by using words like “wildly,” though if we’re being honest, there is nothing remotely wild described in that article, or this one either.) ATM offerings are a way for already-public companies to raise further capital by selling newly issued shares. They are particularly popular among life sciences companies, which often need to continually raise capital for research and regulatory clearance efforts before having significant revenue with which to fund those activities.

It has long been common among companies like this to raise capital using PIPEs (private investment in public equity) or registered direct offerings. Those types of offerings are like public offerings in the sense that in a single, large transaction, a bunch of additional shares are sold to investors, raising a bunch of capital intended to last a while. In contrast, ATMs (along with equity lines of credit, which are conceptually similar but are different in some of the details) involve a commitment by a financial institution to help the company sell new shares to the public not in one fell swoop, but in relatively small installments over a period of time, as directed by the company, at the then-current market price.

This “dribble out” mechanism permits the company to access capital as needed, somewhat analogous to using a line of credit debt facility as compared to a single term loan. The ability of the company to control the timing is advantageous as well, as it can avoid making sales when the market price is relatively low, which are more dilutive to existing stockholders.

The Bloomberg article notes the much lower costs of ATM transaction as compared to a follow-on underwritten public offering, and the same is true when comparing to PIPEs and registered direct offerings. While it is true that legal and accounting costs are somewhat less for ATMs (though not nothing; there are still transaction documents to be negotiated and Securities Act registration to coordinate), the much more significant cost savings are in the percentage of commissions paid to the financial institution, which are in the low single digits for ATMs.