Follow-On Offering

A company that is already publicly traded issues additional new shares to raise growth capital. This is best described as a:

1. A.Initial public offering (IPO)Wrong. An IPO is specifically a company's first sale of shares to the public; this company is already public.
2. B.Follow-on offeringCorrect. A subsequent share issuance by an already-public company is a follow-on offering.
3. C.Private investment in public equity (PIPE)Wrong. A PIPE is a privately negotiated sale of securities to select investors, not a public follow-on offering.
4. D.Tender offerWrong. A tender offer is a purchase of outstanding shares from shareholders, not a new issuance of shares.

Why: A follow-on offering is a subsequent issuance of shares by a company that is already public, as distinct from an initial public offering (IPO), which is the company's first sale of shares to the public.

In a follow-on offering, the book shows that a meaningful number of the company's existing large shareholders are choosing NOT to participate in the new offering at the proposed price. How should the deal team most reasonably interpret this signal, distinct from the overall size of demand in the book?

1. A.It is irrelevant as long as total demand from new investors covers the dealWrong. The outline specifically calls out existing-holder participation as a distinct pricing signal, not something that is irrelevant once new-investor demand covers the deal.
2. B.It may signal that informed existing holders see the price as full, worth weighing even with adequate aggregate demandCorrect. Existing-holder behavior is a specific, informative signal distinct from raw book coverage.
3. C.It automatically means the offering must be canceledWrong. This is one input to weigh in pricing and marketing judgment, not an automatic cancellation trigger.
4. D.It is only relevant to the calculation of the underwriting spread, not to pricingWrong. The outline connects existing-holder participation to sizing, pricing and timing judgments, not spread calculation.

Why: Existing-holder participation is explicitly identified by the outline as a factor in sizing, pricing and timing. Existing holders declining to add to their position at the proposed price can be a signal that informed, already-invested holders see the price as full or the story as less compelling at that level — a different signal than simply "is there enough total demand," and one worth weighing even if the book is otherwise fully subscribed by new investors.