ATM Equity Distribution Agreement – An Overview

An ATM Equity Distribution Agreement, also known as an At-The-Market offering, is a type of equity offering that allows a publicly traded company to sell shares of its stock to the public at the prevailing market price. This agreement is often used to raise capital for the company in a flexible manner, without diluting the value of existing shares.

How Does an ATM Equity Distribution Agreement Work?

Under an ATM Equity Distribution Agreement, a company enters into a contract with an investment bank or broker-dealer to facilitate the sale of its shares to the public. The investment bank or broker-dealer acts as an intermediary between the company and the investors, executing trades on behalf of the company.

The company sets the parameters for the sale, including the number of shares that can be sold, the duration of the offering, and the minimum and maximum prices at which shares can be sold. The investment bank or broker-dealer then executes trades at the prevailing market price, selling shares in small amounts over time.

Benefits of an ATM Equity Distribution Agreement

One of the main benefits of an ATM Equity Distribution Agreement is flexibility. Unlike traditional equity offerings, the company can sell shares at any time and at any price within the agreed-upon parameters. This allows the company to take advantage of favorable market conditions and raise capital when it is needed most.

Another benefit is that the agreement allows the company to avoid diluting the value of existing shares. Because the shares are sold at the prevailing market price, the company is not forced to sell shares at a discount, which would dilute the value of existing shares. This means that existing shareholders can maintain their ownership percentage in the company.

Moreover, the cost of issuing shares under an ATM Equity Distribution Agreement is often lower than that of a traditional equity offering. This is because the company is not required to pay underwriting fees or commissions, as it would in a traditional offering. This keeps the company`s overall cost of capital lower, allowing it to raise more capital at a lower cost.

Conclusion

An ATM Equity Distribution Agreement is a flexible and cost-effective way for a publicly traded company to raise capital. It allows the company to sell shares at the prevailing market price, without diluting the value of existing shares. With the help of an experienced investment bank or broker-dealer, the company can execute the offering in a way that maximizes its benefits and minimizes its costs.