“At The Market” Transactions

Better known as ATMs.  There is an old saying in the capital markets, “the best time to raise capital is when you don’t need it”.  This holds true especially for listed public companies.

The once robust and thriving IPO market has all but shut relative to just a few years ago and the current IPO window only seems to be open to large issuers and even then only when the market and liquidity window stays open long enough to allow a deal to price effectively.  The most prolific structure for mid to smaller tier listed companies is the registered direct offering or ATM. 

The ATM offering – has an economic value driver which is geared towards the company and away from the funds and bankers.  There is no discount to the market on these types of transactions, thus the term “At-the-Market”.  The total fees are almost always less than 5% of the proceeds.  There is no warrant coverage or banker warrants.  The issuing company has full discretion on when to sell shares in the marketplace, if at all.  It is truly “on call” capital. 

This type of offering works well for companies that do not need all of the capital upfront but want the ability to take advantage of price spikes and heavy volume days.  Also, the only time that a sale is announced is generally in the company’s 10Q report so sales done are generally discreet to the marketplace. Additionally, one of the most important benefits of the ATM transaction is that it typically will not restrict the company from any other type of capital raise transaction.

ATM Features and Benefits

• Newly-issued, registered shares of the issuer are sold through a designated broker-dealer into the issuer’s trading market, from time to time at prevailing market prices acceptable to the issuer;
• Issuers give direction (sales orders) to their broker-dealer regarding pricing, amounts, and timing of sales; for example, “Sell up to 100,000 shares today at $1.00 or better”; these instructions can be altered by the issuer at any time;
• Sales of the shares are settled on a rolling T+3 basis, with issuers receiving the gross proceeds of the “at-the-market” sales, less placement agent fees and/or brokerage commissions;
• Since sales are “at the market” and not at a discount, the shares sold in an ATM do not count against the issuer’s limitation of selling no more than 20% of its outstanding shares without shareholder approval;
• ATM offerings can run the duration of an effective registration statement (typically 24-36 months), allowing issuers to access capital from time to time, as pricing and liquidity conditions are favorable;
• ATM offerings typically do not restrict an issuer’s ability to raise capital through other means (underwritten offerings, PIPEs, and Registered Directs);
• ATM offerings typically do not have warrants, and the placement agent fees and/or brokerage commissions are usually less than with other capital raising transactions.

Every eligible company should have an ATM in place to take advantage, at their discretion, of favorable market conditions.