The Rise of Accelerated Seasoned Equity Underwritings

Abstract:     
Seasoned common stock sales executed through accelerated underwitings have dramatically increased global market share recently. Block trades, bought deals and accelerated bookbuilt offerings have raised over $750 billion since 1998, and now account for over half of U.S. seasoned equity offerings (SEOs) and over two-thirds of European SEOs. We examine 31,242 SEOs, executed around the world during 1991-2004, which raised over $2.6 trillion for issuing firms (in primary offers) and selling shareholders (in secondary offers). Compared to fully marketed deals, the 5,110 accelerated offerings are sold much more rapidly, raise significantly more per offering, have lower underwriting spreads and require fewer underwriting banks. Roughly equal fractions of primary and secondary shares are offered in accelerated deals, whereas newly issued primary shares represent over three-fourths of traditional SEOs. In the United States, accelerated deals (overwhelmingly block trades of shelf-registered, primary shares) have significantly lower spreads, less negative announcement period excess returns than marketed SEOs, and are less underpriced, so their total issuance costs are 300 basis points lower. Total issuance costs for non-US accelerated offers are also significantly lower than for marketed SEOs, but less dramatically so. We conclude that this rapid, worldwide shift towards accelerated underwriting is commoditizing seasoned equity sales, and represents the long-predicted shift towards an auction model for seasoned equity sales.

Number of Pages in PDF File: 33

Keywords: Investment banking, government policy and regulation, financial policy

JEL Classification: G24, G28, G32

working papers series