The Rise of Accelerated Seasoned Equity Underwritings

33 Pages Posted: 14 Mar 2006  

Bernardo Bortolotti

Bocconi University; University of Turin

Scott Smart

Indiana University - Kelley School of Business - Department of Finance

William L. Megginson

University of Oklahoma; College of Industrial Management

Multiple version iconThere are 2 versions of this paper

Date Written: March 14, 2006

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.

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

JEL Classification: G24, G28, G32

Suggested Citation

Bortolotti, Bernardo and Smart, Scott and Megginson, William L., The Rise of Accelerated Seasoned Equity Underwritings (March 14, 2006). AFA 2007 Chicago Meetings Paper. Available at SSRN: https://ssrn.com/abstract=890640 or http://dx.doi.org/10.2139/ssrn.890640

Bernardo Bortolotti

Bocconi University ( email )

Via Sarfatti 25
Milan, MI 20136
Italy

University of Turin

Via Po 53
Torino, Turin - Piedmont 10100
Italy

Scott B. Smart

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Kelley School of Business
Bloomington, IN 47405
United States
812-855-3401 (Phone)
812-855-5875 (Fax)

William L. Megginson (Contact Author)

University of Oklahoma ( email )

307 W Brooks, 205A Adams Hall
Norman, OK 73019
United States
(405) 325-2058 (Phone)
(405) 325-1957 (Fax)

HOME PAGE: http://faculty-staff.ou.edu/M/William.L.Megginson-

College of Industrial Management ( email )

Dhahran, 31261
Saudi Arabia

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