The practice, known as a distribution, was traditionally used by venture capital firms but has gained popularity among private equity firms as well, Wells Fargo’s McCracken said.
Some public companies looking to raise capital have turned to more structured fundraising products such as convertible bonds to effectively sell shares at a premium to current prices.
While convertible bonds are a good way to mitigate market risks, companies will likely tap the market only when there’s a need.
“In this environment the companies likely raising capital will be ones that have a need, whether it be to fund acquisitions, organic growth, or refinancing the balance sheet,” he said. “This is in contrast to much of the last couple of years where companies frequently tapped the equity capital markets opportunistically to add dry powder to their balance sheets without a defined use of proceeds.”
This article was provided by Bloomberg News.