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What Is an At-the-Market Offering & How Does It Work?

June 4, 2022
7
min

At-the-market offerings are one tool publicly traded companies can use to raise capital. They are faster and more flexible than traditional follow-on offerings.

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An at-the-market (ATM) offering is a tool a publicly traded company can use to raise capital quickly by incrementally selling new shares into the stock market. These offerings are more flexible and cheaper than traditional secondary stock offerings, and they can allow companies to raise money by leveraging company milestones, planned news releases, as well as upward trends in company’s share price or a broader bull market.

2021 was a banner year for ATM offerings: The Wall Street Journal reported in late August 2021 that $75 billion of ATM offerings were issued year to date, up 70% from that period a year earlier, as companies took advantage of a rapidly recovering stock market as the world learned to manage and live with the COVID-19 pandemic. Notably, in June 2021, GameStop Corp. announced that it completed an ATM offering program. It had filed a prospectus with the SEC to sell up to 5 million shares, and it sold all 5 million in less than two weeks, generating gross proceeds of $1.126 billion.

What is an at-the-market offering?

An at-the-market offering is when a public company issues stock shares to quickly raise capital. They’re also known as dribble-out facilities, controlled-equity offerings, or equity-distribution programs.

In an ATM equity offering, a company can sell any number of just-issued shares or ones already owned at current market prices through a broker-dealer. ATM offerings tend to be smaller and more spaced out than more traditional follow-on offerings, where a set number of shares are sold at a set price in one lot. 

ATM offerings can take advantage of a rise in share price, since shares can be sold as needed, and aren’t locked into a batch price like traditional secondary offerings. Likewise, companies aren’t obligated to sell if current prices are unfavorable. A company can also sell from time to time, starting and stopping selling as needed. ATM offerings are fast-issuers, so companies can usually establish an ATM facility in 30 days or less. Many publicly traded companies have ATM programs run by broker-dealers that they pay to maintain so they can make ATM offerings as desired.

How do ATM offerings work?

Publicly traded companies can use ATM offerings as secondary, follow-on stock offerings. In an ATM offering, a company sells newly issued shares through a broker-dealer at market value, bit-by-bit. As the firm’s agent, the broker-dealer and company can change the amount of ATM stock offered depending on the market and company’s needs. They are well-suited to take advantage of operational milestones and utilize higher than usual liquidity and rising stock prices that may happen following good news. ATM programs can last as long as the company offering shares wants.

Companies planning to make ATM offerings may either file a shelf registration statement on Form S-3 with the SEC or use a previously filed one. Companies may want to use ATM offerings because they allow fast and flexible capital raising at current market prices. 

At-the-market offerings vs. traditional follow-on offerings

  • Sales approach. Traditional follow-on offerings are single offerings, with a large number of shares sold at one price, at one time. ATM offerings are incremental: The issuer can make as many sales under the program as it wants, at the current market price, for up to three years. 
  • Vulnerability. Traditional follow-ons are less vulnerable to stock market moves because the price is set when the offering is made. ATMs can be vulnerable to volatility; while issuers are under no obligation to sell, unfavorable prices can make selling under an ATM facility unattractive. 
  • Time to organize. Traditional underwritten offerings can take at least a month to put together, while ATM offerings can be put together in two weeks.

Why do companies use ATM offerings? 

Companies using ATM offerings often use them to raise capital during favorable market conditions as needed, without necessity to announce or promote the offering, and generally without a meaningful effect on current share prices. Because of their dribble-out nature, they are especially useful for companies that may not need to raise a lot of money in a short amount of time. ATMs are often used to pay down debt as well as fund small acquisitions or a series of small acquisitions, research and development (R&D), growth initiatives or specific projects, or to raise working capital. ATM offerings can also be used in tandem with other financing methods such as traditional secondary offerings and debt offerings, giving companies making ATM offerings more flexibility.

Advantages and disadvantages of at-the-market offerings

There are many reasons a company may choose to set up an ATM facility as opposed to other capital raising methods. 

Advantages of at-the-market offerings

  • Flexibility. ATM offerings allow the issuer to be nimble and act according to market moves: They can capitalize on rising stock prices, or set a floor price under which sales won’t be made. ATM offerings can allow companies to fundraise without being subject to stock exchanges’ shareholder-approval rules. 
  • Minimal market effect. ATM stock offerings generally have a smaller market effect than other offerings and there’s no requirement to announce it—plus, investors can’t short the stock ahead of the offering since the timing is unknown. The announcement of an ATM offering typically results in a lower share-price decline than traditional follow-on equity offerings. 
  • Lower costs. Commissions are usually much lower than underwritten offerings. The cost of an ATM offering is usually lower than traditional follow-on offerings, most often at 1% to 3%. Also, because there’s no issuer commitment to sell stock, companies can avoid sales at subpar prices. 
  • Speed. Sales made under an ATM offering are executed immediately. They’re useful for trades that need to happen at a specific date or time. 

Drawbacks of at-the-market offerings

  • Market exposure. ATM offerings may not be a preferable option during a bear market or during a period of share-price declines, although a company can simply decide not to make an ATM offering during unfavorable conditions. But this means they are a greater source of uncertainty than traditional follow-on offerings, and companies in need of money immediately might sell at undesirable prices if other capital-raising options aren’t available.
  • Maintenance costs. ATM facilities require continuous costs to keep running.
  • Size. ATM offerings are usually smaller than traditional follow-ons and may not be an appropriate tool to raise lots of capital quickly.
  • Availability. ATM offerings are registered offerings that will generally only be available to issuers able to conduct shelf offerings using Form S-3. Companies with low trading volume also may not be able to make use of ATM offerings. 

Eligibility and basic documentation 

Issuers must meet eligibility requirements to use a shelf-registration statement with the SEC on Form S-3, or Form F-3 for foreign private issuers. To be eligible to file an S-3, companies must have a public float—or market value of shares held by non-affiliates—of at least $75 million, have been a public reporting company under the Securities Exchange Act of 1934 for at least 12 months, and have filed in a timely matter all reports required by the SEC a year before filing the S-3.

Issuers can file an S-3 with a public float less than $75 million, but then they aren’t allowed to offer more than one-third of public float during any trailing 12-month period in ATM programs or any securities sold in any primary offering and must meet additional criteria.

Issuers that qualify as a well-known seasoned issuer, or WKSI, are able to use a more flexible registration process. 

How did ATM offerings become popular?

ATMs were allowed in the 1980s, but weren’t used much due to institutional restrictions. Utility companies were early users of this type of offering. Regulatory changes in 2005 and 2008 made it easier to take advantage of ATM financing, and many companies used them after the market crashed.

The 2008 changes by the SEC gave all public companies the ability to use Form S-3 to file shelf registrations and offer securities directly to the public. Companies that had a public float of less than $75 million, but were previously ineligible, were now eligible to qualify. 

The bottom line

ATM offerings are one tool publicly traded companies can use to raise capital. They are faster and more flexible than traditional follow-on offerings that have set stock prices. They may be especially effective during bull markets and before significant company events or achievements to take advantage of good news—and possible share-price increases and periods of higher liquidity.

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