If you’re thinking about a follow-on offering, it’s important to review a range of contributing factors, preferably with the help of experienced advisors such as your banker and their team at Truist Securities. New shares will always impact the capital structure to some extent. There could be a negative effect on earnings per share (EPS) when the total number of shares increases, which could dampen overall investor sentiment. However, if the proceeds are used to grow earnings or pay down high-interest debt, it could result in decreasing or eliminating the negative effect.
It’s also important to consider how an offering compares to other potential forms of capital raising relative to the company’s existing assets and needs. Debt financing doesn’t dilute ownership or directly lower EPS, but it comes with interest and principal payments, which could be dilutive to earnings. Private share placements might be able to execute more quickly than a public offering, but a broader audience may provide access to more capital or better terms.
Some factors are outside an issuing company’s control but still have a bearing on the advisability of a follow-on offering. If existing share prices are depressed, either as part of an overall downturn or company-specific conditions, you’ll need to sell more shares—and incur more dilution—to hit your capital goals. In another scenario, if interest rates are falling and yields on bonds and other interest-bearing investments are declining, investors might have more appetite for shares from companies poised to grow. That’s where talking to your banker is valuable. Not only do they understand your goals, but they understand the state of the markets and your industry, both of which can play a role in your success.
