HSE Views

In an At-the-Market offering, commonly known as an ATM offering, a public company sells its shares into an existing trading market at the then-current market price instead of a fixed or negotiated price. This type of offering is sold over a longer period of time than a traditional firm commitment offering, and the price paid for the shares will vary as the market price for the shares varies. The number of shares sold on any day or in any single offering is not considered significant in relation to the issuer’s public float or daily trading volume. The issuer engages a broker-dealer to sell the shares within a set range of prices using no special selling efforts. The shares are sold on or through a national securities exchange, like NYSE or Nasdaq, or to or through a market maker.

Pros:

  • Minimal market impact - Issuers can quickly raise capital by selling newly-issued shares into the natural trading flow of the market at market prices, without having to market and announce the offering. This method is less likely to have a negative impact on an issuer’s trading price.
  • Flexibility - Issuers have flexibility in determining the timing and size of the offering because the terms are agreed upon between the issuer and its agent in advance, in the issuer’s discretion. Issuers can choose to sell a specific number of shares over a set window of time within ranges of prices, or instruct the agent to sell only a certain percentage of its outstanding shares into the market in any one offering.
  • Less dilutive - Compared to other alternative methods of financing, like equity lines of credit, registered directs, and PIPEs, ATMs are less dilutive, typically because the other alternatives require warrant coverage.
  • Lower cost - The distribution costs for ATM offerings typically are less than lines of credit, registered directs, PIPEs or CMPOs.
  • Minimal management involvement - ATM offerings do not require special selling efforts, including roadshows and involve only limited prospectus preparation and delivery requirements.
  • No shareholder approval - ATMs are considered “public offerings” under Nasdaq and NYSE listing standards, preventing the need to receive shareholder approval to issue the shares.

Cons:

  • Smaller sized deals - ATM offerings are generally not as attractive to issuers seeking to raise a large amount of capital because the issuer must trickle out the shares over time into the market.
  • Liquidity - Issuer must have enough trading volume to support an ATM, which may be challenging for many small-cap or micro-cap issuers.
  • Price is market dependent - The price of the offering is set by the market and not fixed. The fluctuating market price will cause the cost of raising capital to change as the market fluctuates, unlike an equity line of credit or a credit facility.
  • Public offering - ATMs allow issuers to trickle shares into the market and may be less dilutive than other offerings, but they are registered offerings. Accordingly, they are not as stealthy as PIPEs, which are announced only after pricing. Once the selling agreement for the ATM has been entered into and as shares are sold, the transactions must be disclosed at the end of each quarter in the issuer’s periodic reports under the Securities Exchange Act of 1934.
  • Form S-3 eligibility - Issuer must be eligible to use Form S-3 and typically not be subject to the “Baby Shelf” rules, meaning the issuer must have a non-affiliate market cap of $75 million or more. This element, combined with the need for liquidity in the issuer’s shares, may make this type of offering out of reach for small-cap or micro-cap issuers.

Before structuring and conducting an ATM offering, a company should consider:

  • Regulation M
    • Prohibits stabilization and passive market making activities by the issuer or broker-dealer.
    • Issuer will need to determine whether ATM constitutes a “distribution” under Regulation M. If it does, the broker dealer’s ability to issue research reports or engage in market making activities will be significantly limited.
  • Integration
    • If additional capital raising activities, whether public or private, will be occurring simultaneously with (or within six months of) the ATM, the transactions will need to be structured to comply with applicable SEC regulations to avoid having the offerings integrated by the SEC.

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