Type of issue in which the issuer places its securities directly with investors, without the support of an underwriting syndicate
Direct offerings are typically undertaken by banks and insurance companies – i. e., companies that have already developed business relations with the investing public and established an extensive sales system which they can use to place the securities.
A direct offering is less costly than an issue supported by an underwriting syndicate. However, there are potential difficulties associated with a direct offering, for example, if the securities are to be placed with international investors. Moreover, if the issuing volume is particularly large, it can overload the issuer’s sales system. For this reason, issuers are increasingly handling direct offerings via the Internet.
Frequently, a company will opt for a direct offering if it has been able to agree upon the terms of the issue with a large-scale investor (private placement).
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