What Is an ATM Offering? How It Works for Companies

An At-The-Market (ATM) offering is a method for publicly traded companies to raise capital by selling new shares directly into the existing trading market. This equity offering allows a company to sell its securities over a period of time, functioning as a continuous offering. This process involves the incremental sale of shares at prevailing market prices.

Core Mechanics of an ATM Offering

The operational process of an ATM offering begins with a publicly traded company establishing an agreement with a designated broker-dealer. This broker-dealer acts as the company’s agent to facilitate the sales of newly issued shares. The company must also have an effective “shelf registration” statement on file with the Securities and Exchange Commission (SEC). This shelf registration allows the company to register a certain amount of securities for sale over a period without needing a new registration for each individual sale. Once the framework is in place, the company can instruct its broker-dealer to sell shares into the open market at prevailing prices.

The company maintains control over the timing and volume of these sales, enabling it to respond to market conditions. This gradual approach means shares are “trickled” into the market, minimizing immediate price impact. The broker-dealer executes these sales on a best-efforts agency basis, meaning they sell shares as demand allows without guaranteeing the sale of a fixed number of shares. Upon sale, the proceeds are delivered to the issuing company, which can then utilize the capital for various purposes.

Distinguishing Features of an ATM Offering

An ATM offering has several unique attributes that set it apart from traditional equity financing methods. Its continuous nature allows companies to raise capital incrementally over an extended period, rather than through a single, large issuance. Shares are sold at prevailing market prices, which helps avoid the deep discounts often associated with large, underwritten offerings.

Companies benefit from significant control over the timing and amount of shares sold, enabling them to pause or resume sales based on market strength or capital needs. This flexibility allows companies to strategically manage their capital raising efforts. ATM offerings have a lower public profile compared to traditional underwritten offerings, which involve extensive marketing. The distribution costs for ATM offerings are lower, with agent fees ranging from 1% to 3% of gross proceeds, in contrast to the higher fees of 5% to 7% seen in fully underwritten deals.

Common Scenarios for ATM Offerings

Companies often utilize ATM offerings for general corporate purposes, providing a steady stream of capital to support ongoing operations. This can include funding working capital needs. The flexibility of an ATM program makes it suitable for financing smaller acquisitions or strategic investments as opportunities arise.

Companies also employ ATM offerings to repay existing debt, allowing for balance sheet management without the pressure of a large, immediate capital raise. This method is useful for companies that require capital gradually over time or aim to minimize the dilutive impact on existing shareholders by spreading out the issuance of new shares. This aligns well with fluctuating financial requirements and helps companies maintain financial agility.