At-the-market offering

An at-the-market offering (ATM) is a program through which a public company sells shares into the open market at the current market price, continuously or periodically, without a fixed price or a specific end date. The company authorizes an investment bank agent to sell shares on its behalf when market conditions are favorable. ATM offerings allow companies to raise capital gradually while minimizing market disruption and underwriter fees, but they provide less certainty and control than traditional follow-on offerings.

How an ATM offering works

A company registers an ATM program with the SEC for, say, up to $1 billion of shares. The company does not need to issue all $1 billion at once. Instead:

1. Registration: Company files with SEC to register the ATM program.

2. Agent appointment: Company appoints an investment bank as the “agent” or “sales agent” to manage the program.

3. Gradual issuance: Over weeks, months, or years, the agent sells shares on the company’s behalf at the current market price.

4. Capital deployment: The company receives proceeds and uses them for operations, acquisitions, debt repayment, or balance sheet management.

5. Program termination: The company can terminate the ATM program at any time or allow it to expire after $1 billion is raised.

For example:

• Company registers $500 million ATM program.
• Week 1: Agent sells $50 million of shares at $100 per share = 500,000 shares.
• Week 2: Agent sells $30 million at $98 per share = ~306,000 shares.
• (Continuing…eventually $500 million is raised or company terminates.)

Advantages of ATM offerings

Gradual capital raising: Rather than raising all capital in one disruptive offering, the company raises it gradually, minimizing market impact.

Lower costs: Underwriter fees are lower (~0.5–1%) compared to traditional follow-on offerings (~3–5%).

Flexibility: The company can accelerate sales when the stock price is high or suspend sales when the price is low.

No fixed terms: Unlike a traditional offering with a set price and size, ATM programs adapt to market conditions.

Valuation benefit: If the company’s stock appreciates over time, ATM sales at higher prices raise more capital per share issued, reducing dilution.

Disadvantages of ATM offerings

Uncertainty: The company does not know when or at what price shares will be sold, making financial planning less certain.

Continuous dilution: Existing shareholders are continuously diluted as new shares are issued, which can pressure the stock price.

Market perception: Some investors view ATM programs negatively, as a sign that the company is constantly diluting shareholders.

Gradual capital: The company cannot raise capital quickly for an urgent need (unlike a traditional follow-on offering that closes in weeks).

Overhang: The mere existence of an ATM program can pressure the stock price if investors worry about dilution.

Who uses ATM offerings

ATM offerings are most commonly used by:

• Bank holding companies: Raise capital gradually to build capital ratios and for regulatory compliance.

• Insurance companies: Raise capital for growth and loss reserves.

• Mature growth companies: Gradually raise capital for steady-state growth without major capital events.

• Biotech and pharmaceutical companies: Fund ongoing R&D and clinical trials.

• MLPs (master limited partnerships): Raise capital for distributions and growth.

ATM offerings are less common for high-growth tech companies, which tend to prefer opportunistic large offerings when stock prices are high.

Typical ATM program terms

• Authorization size: $500 million to $2+ billion.
• Duration: Open-ended (no expiration) or multi-year.
• Agent bank: Usually a major investment bank (Goldman Sachs, Morgan Stanley, JP Morgan, etc.).
• Acceleration rights: Company can request the agent accelerate sales if market conditions are favorable.
• Suspension rights: Company can suspend the program at any time.
• Pricing mechanism: Sales typically at 97–102% of the previous closing price (a small discount to encourage buyers).

ATM versus continuous offering

An ATM offering is a specific type of continuous offering in which sales occur at the market price. A broader continuous offering program might have fixed terms or different mechanics, but ATMs are the standard form.

Regulatory treatment

ATM programs must be registered with the SEC via prospectus. The prospectus discloses the authorization size, use of proceeds, and risk factors. The company can update the prospectus periodically to disclose recent sales and capital deployment.

The SEC’s Rule 415 allows ATM programs to be registered without a specific termination date, making them flexible.

Market impact and signaling

The announcement of an ATM program can signal:

• Capital needs: The company needs capital for growth or other purposes.

• Balanced approach: The company wants to raise capital without disrupting the market.

• Opportunistic mindset: Management will issue more shares if the price is high (taking advantage of favorable valuations).

Market reaction is typically neutral to slightly negative, depending on the authorization size and the company’s capital needs.

Comparison to other equity offerings

• Follow-on offering: Large block offering, immediate capital raise, higher underwriter fees, specific pricing.

• PIPE offering: Private investors commit to buy shares at a fixed price, outside the market.

• Rights offering: Existing shareholders are given the right to buy new shares at a discount.

• ATM offering: Gradual, at-market sales, lower fees, flexible.

Acceleration programs

Some ATM programs include acceleration provisions. If the company experiences a significant equity event (e.g., a large acquisition is announced), the company might request the agent accelerate ATM sales to raise capital quickly before the market reprices the stock.