What Is a Secondary Offering?
A secondary offering is any sale of shares that happens after a company's IPO. The term covers two distinct situations. In a follow-on offering, the company itself issues new shares and keeps the proceeds, which dilutes existing holders. In a true secondary offering, existing shareholders such as founders or private equity sponsors sell shares they already own, so the total share count stays the same and the company receives none of the money.
Investors watch these deals closely because they change the supply and ownership picture of a stock. A large primary raise can signal that management sees attractive investment opportunities, or that the balance sheet needs repair. A big insider sale can suggest that early holders want out, which is why banks work hard to frame the story and place the shares with long-term institutional buyers.
How Secondary Offerings Are Executed
Deals come in several formats. A fully marketed offering involves a multi-day roadshow and works like a mini IPO. An overnight or accelerated bookbuild is announced after the market closes and priced before the next open, with the bank collecting institutional orders in a matter of hours. In a bought deal or block trade, the bank purchases the entire stake from the seller at a discount and takes the risk of reselling it to investors.
Because the stock already trades, pricing anchors to the market: offerings typically price at a discount of roughly 2 to 8% to the last closing price, with larger or riskier deals requiring bigger concessions. Fees are also lower than the 5 to 7% gross spread underwriters earn on IPOs, often landing in the range of 1 to 4% depending on the deal type and the risk the bank takes on.
Why Secondary Offerings Matter in Banking
Follow-ons and block trades make up a large share of equity capital markets revenue, and after every IPO the same banks compete to lead the sponsor's sell-downs once the lock-up period expires. A private equity firm that took a company public rarely exits at the IPO itself; it usually sells its remaining stake through a series of secondary offerings over the following one to three years.
For interviews, be ready to distinguish primary shares from secondary shares and to explain dilution. If a company with 100 million shares outstanding issues 10 million new shares in a follow-on, each existing holder's ownership falls by about 9%, and earnings per share drops unless the proceeds generate offsetting income. A pure insider sale, by contrast, transfers ownership without changing the share count at all.
