A funding round of securities which are sold not through a public offering, mostly to a small number of chosen investors. The Private Investment is based and done on the same investment portfolio only with cost, benefits and structural differences.
- LONG TERM
Private Investment provide longer maturity than typical bank financing, at a fixed-interest rate. This is ideal for when a business is presented with a growth opportunity where they wouldn’t see the return on their investment right away; a business would have more time to pay back the private Investment while having certainty of financing cost over the life of that investment. Also, private Investment are typically “buy-and-hold”, so the company would benefit from having a long-term relationship with the same investor throughout the life of the financing.
- SPEED IN EXECUTION
The growth and maturity of the private placement market has led to improved standardization of documentation, visibility of pricing and terms, increased capacity for financing’s as well as overall increase of size and depth of the market (US$10MM – US$1B+). Thus, the private placement market fosters an environment that allows for quick execution of an investment, generally within 6-8 weeks (for the first transaction – follow-on financing’s can be executed within a shorter time frame). Additionally, it is typically faster to issue a private placement versus a corporate bond in the public market because the issuer is not required to expend time and resources creating a prospectus and registering with a securities commission.
- COMPLEMENT TO EXISTING FINANCING
Private placements also help diversify a company’s sources of capital and capital structure. Since the terms can be customized, private placements can complement existing bank debt versus compete with it, and can allow a company to better manage its debt obligations. Diversification of funding sources is particularly important during market cycles when bank liquidity may be tight. Private placements enable privately-held, middle-market companies and public companies to access capital just as they would with an underwritten public debt offering, but without certain requirements, such as ratings, registrations or minimum size. And for public companies, private placements can offer superior execution relative to the public bond market for small issuance sizes as well as greater structural flexibility.
- PRIVACY AND CONTROL
Private placement transactions are negotiated confidentially. Also, public disclosure requirements are limited, compared to those found in the public market. Companies would not be beholden to public shareholders.