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finance a la shmoop. what is a secondary offering?

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okay so hangers has gone public. in an IPO that was its primary offering. hint hint.

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and hangers yes well they sell hangers. well hey if Staples can do it you know [man stands in front of hangers]

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why not? anyway well how'd they go public well yes it was an IPO or initial public

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offering, the first offering of formerly private shares to the public. but here

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we're talking about a secondary offering so what does that mean? well usually

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young companies have a bunch of insiders- people like the founders and the

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employees and the original investors, and everyone wants to buy a home a Porsche a

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diamond-studded Fitbit ,you know whatever. and in many cases the shares of these

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early companies like hangers, represent almost all of the net worth of the

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insider. so understandably they want to not have all of their eggs in one basket

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or one stock in this case right? well they want to diversify. that is they want [eggs in a basket]

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to sell some of their shares and get cash and then go buy a home a car or buy

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bonds or a mutual fund or an index fund or some other presumably safer

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investment vehicle than hangers. well the rule in most cases is that insiders

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cannot sell their own shares until at least six months and change after the

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company has begun trading publicly. it's called the 144 a rule. write that down

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actually don't write down. all right but when they do sell they generally want to

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work as a team so that their shares can be placed into the hands of funds who

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have demand to hold their shares awhile right> they don't want to just dump the

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shares into the market crater the stock and well basically screw everyone else.

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how is this important? well let's think through a process here if everyone just

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hit the panic dump button at 6:31 a.m. California time, the day that they could [dump button pictured]

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first legally sell shares, well odds are good that the stock price which had been

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hovering nicely at $32 and 12 cents a share give or take a dime or two, would

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suddenly plunge with the massive extra supply of shares,

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and not a splurge in demand to meet it. so then all of a sudden the stock is at

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23 bucks a share and falling and the marketplace thinks that don't know

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somebody something must be wrong with this somebody must know something so we

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should dump too. and then it's kind of like sympathy stock diarrhea and not a

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good situation as the stock is looking at 12 bucks. so normally the investment

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bank who took the company public in the first place would circle with the [bankers and investors placed in a circle]

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investors who bought in and are still holding the shares of hangers and they

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place more shares in their hands. and they do this in the form of what is

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called a secondary offering, yes it took us a while to get there but we did, which

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is largely like an IPO lite. the management team might need to meet with

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a fifth or a tenth as many of the investors they met on the IPO, and just

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refresh conversations as they relate to publicly available information and

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guidance on how well or poorly the company is doing, then they place those

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shares that is sell say 2,000 of them per person and well you know they move

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on. then they place those shares and let's say there's five million of them [stack of stocks]

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and they spread them around to all the mutual funds and hedge funds buying them,

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and then give the insiders their cash. so now a whole new group of folks have been

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given the enviable opportunity to own hangars and while the employees and

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investors that have been there since day one yeah well they get to cash out at

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least partly, and let's just say that for them driving to work is now a thing of

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the past. [man uses laptop from bed with an empty bag of chips next to him]

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