ATM offerings, which were considered an obscure fund raising mechanism only a few years ago, continue to increase in popularity. In 2018, announced ATM offerings were on target to raise close to 50 percent of the funds raised in the same year via traditional initial public offerings (“IPOs”).
In ATM offerings, as in IPOs, an issuer sells a newly issued set of its securities to the general public in a public offering. Typically, a financial institution facilitates the offering, in case of ATM offerings, acting as a sales agent. Unlike in an IPO, however, the issuer and the financial institution do not set a specific price for the securities. Instead, they sell them at the then-prevailing market price. This pricing structure replicates a standard at-the-market sales order that any owner of exchange-listed securities can place with her broker. ATM offerings are also known as “equity distribution programs,” “continuous offering programs,” “controlled equity offerings” and “dribble out” programs.
In this type of offering, the financial institution typically acts on a best efforts basis, meaning that it is only obligated to sell as much as it can. It does not engage in market stabilization to smooth out the initial trading of the securities. Consequently, ATM offerings command lower broker fees and are typically less costly than other, similar fund raising mechanisms. ATM broker fees usually range between 1 and 3 percent, whereas the fees of a firm-commitment underwriter are typically in the 5 to 7 percent range.
ATM offerings can also save on legal and accounting fees. For example, one issuer aiming to raise $4.2 million in an ATM offering in 2018 reported spending $25,000 in legal fees and $15,000 in accounting fees, while another, raising $4.6 million in a follow-on offering spent $32,000 on legal fees and $40,000 on accounting fees.
In addition to saving costs, ATM offerings can be organized fairly quickly and are a good alternative in times of market volatility.
The graph below shows that ATM offerings reached a crescendo in 2009, but were considerably cooled by the financial crisis. Over the last five years, however, they have once again gained in popularity. Considering the jittery markets over at least the last couple of years, it is perhaps not surprising to see the resurgence of ATMs as a popular fund raising tool.
*Data is for At The Market offerings of ≥ $1 million, announced during the time period indicated and listed on a U.S. stock exchange.
An impressive 202 ATM offerings announced in 2018 were projected to raise a total of $31.75 billion, the largest amount in the last ten years. The average deal size for an ATM offering announced in 2018 was $157 million. To put things in perspective, 274 IPOs were priced in 2018 and raised $64.74 billion.
Looking at industry distribution for ATM offerings in 2018, 52 percent were announced by companies in the Consumer, Non-Cyclical sector and 27 percent came from the Financial sector.
The two largest ATM offerings announced in 2018 were by: MPLX LP (announced on March 13, in the Energy sector and projected to raise $1.74 billion) and Annaly Capital Management Inc. (announced on January 3, in the Financial sector and projected to raise $1.50 billion).
With additional analysis by Tom Shen, Senior Data Analytics Manager at Bloomberg Law.
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