Frequently Asked Questions about ATMs
In simple terms, what’s an ATM?
ATM stands for at-the-market, as in “at-the-market offerings.” In an ATM, a listed company sells newly issued shares incrementally into the existing trading marketing through a broker-dealer, at market prices. The broker-dealer, acting as the company’s agent, can continuously change the amount and manner of sales depending on market conditions and instructions from the company. ATMs are in contrast to traditional follow-on offerings, in which a fixed number of shares are sold at a fixed price in one batch.
How are ATMs “flexible” and “controlled”?
A company can start or stop the sale of shares as needed (which is why ATMs are sometimes referred to as “dribbles out programs.”) Unlike a traditional stock offering where a fixed number of shares are sold at a fixed price all at once, an ATM offering sells shares incrementally at the prevailing market prices: selling at the market.
What are some of the more common uses of ATMs?
ATMs can generate proceeds cost-effectively with the timing and price at the discretion of the issuer. They can also be positioned in advance of an upcoming liquidity event or major milestone and take advantage of above-average liquidity and a rising stock price that can occur with positive news. An ATM can also complement other financing vehicles, increasing the financial flexibility for a company.
What’s an ideal use of an ATM?
They’re ideal for raising general working capital, funding specific projects, funding research and development, and paying off debt.
Are ATMs the same as an equity line of credit?
No. The only similarity is that newly issued shares are sold in the open market. In an equity line of credit, the shares are sold to previously identified parties at prices that usually result in significant discounts to the fair price of the stock. ATMs are sold at the market price.
Are ATMs a “last resort” financing vehicle?
Absolutely not. ATMs are a critical component of a well-rounded financing toolbox. Because of the “dribble out” nature of ATMs, they would actually be a poor choice for a company in dire need of financing or without near-term value generators or milestones. ATMs have been used for more than 25 years by experienced management teams at some of the largest and most well known companies in the U.S.
Will announcing an ATM offering depress a company’s share value comparable to traditional follow-on offerings?
Unlike the typical drop in stock price (7 to 10 percent) that follows the announcement of a traditional follow-on equity offering, the average stock price change following the announcement of an ATM is minimal (1 to 3 percent).
It is true that ATMs aren’t an appropriate tool for larger, more liquid companies?
ATMs are used by companies of all market capitalization ranges. Since 1999, more than $50 billion has been raised by U.S. companies across a wide range of industries, both big and small, through the use of ATM offerings.
If ATMs are so great, why isn’t everyone using them?
The main reasons are lack of awareness and misperceptions about ATMs. It takes an expert partner who is dedicated and experienced with ATMs to manage them properly. Also, the traditional investment banks don’t have the incentive to actively promote ATMs because at-the-market financing might cannibalize their higher-margin business. Traditional investment banks generally don’t discuss ATMs unless the issuer asks.
What’s a downside of an ATM?
If an issuer is caught off guard and needs to raise a large amount of capital in a very short period of time, an ATM may not be the best tool for them. At-the-market offerings are an important tool for issuers to have in the financing toolkit if they want to have more flexibility and be more strategic in their approach to raising capital.
Are they waning or gaining in popularity?
There’s a significant uptick in ATM use in recent years. Brinson Patrick’s data on life science companies, for example, shows that more than $216 million was raised in 2011 with at-the-market offerings, versus $184 million in 2010, $91 million in 2009, and a little over $1 million in 2008. 2012 is on track to break those records, with $90 million through 20 ATMs in the first quarter of 2012. For other industries the upward trend is similar.
