A company life map - the rise and fall of a hot stock
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4. AIM flotation by an offer for sale
Country Bumpkin did not have to "place" its new issue of shares. It could have floated by way of an "Offer for Sale".
- The prospectus would have been the same, but instead of placing the shares with a few institutions, it would have invited members of the public to subscribe for them at the 80p offer price. As well as being posted to potential investors, the prospectus might be advertised in the press in abbreviated form, and appear on 'new issues' or IPO (Initial Public Offering) websites.
- As a potential investor, it is important to check whether the shares are being offered for sale by existing shareholders or are newly-issued shares. In the first case, the money goes into the pockets of the individual vendors, and you might wonder why they are "cashing in". In the second case, the money goes to the company.
- The subscription process would have been straightforward. Interested investors just fill in a form, say how many shares they want, attach a cheque and send it to the company. Country Bumpkin would then collate the applications, and allocate the shares, possibly scaling them back if the issue was oversubscribed. It gets the investors' money. They get shares. Simple.
BUT
- The offer for sale would have been more expensive for Country Bumpkin, because of the costs of marketing to thousands of investors and the associated administrative work.
- There would also have been costs in having the offer underwritten by a merchant bank.
An offer for sale does get shares into a wider number of hands than a placing and for some companies that is important. Shares concentrated in too few hands are difficult to trade - they have "poor liquidity".
For Country Bumpkin, however, the simplicity and lower costs of a placing were decisive. The key objective was to raise capital rather than obtain maximum liquidity for the shares.
Had the company's priority been to raise the maximum amount of capital, it might have chosen another variation on the theme - a Tender offer.
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