| a sale of an issue of securities by the issuing company directly to a limited number of investors, often only one or two large institutional investors, such as a bank or an insurance company (opposed to public offering ): required to be cleared but not registered with the Securities and Exchange Commission. |
Private Placement
Raising of capital via private rather than public placement. The result is the sale of securities to a relatively small number of investors.
Investopedia Commentary
Private placements do not have to be registered with organizations such as the SEC because no public offering is involved.
Related Links
IPO Basics Tutorial
See also: Capital, IPO, Placement, Restricted Stock, SEC
private placement
Case Study For companies needing investment capital, private placements often save time and fees compared to public offerings. In early 2000 Healtheon/WebMD Corporation issued $930 million of new stock directly to the Janus funds. From Healtheon's standpoint, the issue was taken care of quickly without the need to pay a hefty fee to the firm's investment banker, Morgan Stanley Dean Witter (now Morgan Stanley). From Janus's standpoint, the firm was able to obtain a small discount on a sizeable block of stock it wanted to buy. In addition, Janus wasn't required to take a chance on bidding up the price of Healtheon stock by buying shares in the open market. Shares included in the private placement increased Janus's stake in Healtheon from 3% to 12%, a relatively large position for a mutual fund. |