Reasons why a mature company would want to raise capital through equity finance?
I used to work at AM / debt group but transferred to industry coverage a couple of months ago. I got asked to do a bunch of pitches on follow on offerings or convertible bonds, and some of these are sent to mature companies in the technology space who are doing fine by themselves as far as I can tell.
My boss seems to be using these pitches mostly to get appointments to catch up with clients so there may not exist a logical explanation why these companies should consider equity finance, but can someone kindly give some examples or theoretical reasons why a mature company might want to raise equity capital? What I thought was that they could be thinking about entering into new business areas that require additional investments or their industry is a cyclical one and they would want to be prepared for expansion in the upcoming years.
Generally companies try to raise debt first as it’s cheaper so if they are only looking for equity it’s generally in one of the two categories below
They can’t raise debt because (a) early stage (small and or burning cash) or (b) burning cash or (c) deeply cyclical or (d) other unique dynamics (customer concentration, supplier concentration, etc.)
Or in the case of a minority equity investment (where maybe they could raise debt but don’t) they could be looking for (a) someone to establish valuation or (b) expertise / brand name / etc of an independent asset manager or (c) someone with more capital than the owner who can provide more capital down the line
If a company feels they’re overvalued an equity issuance could be a way to raise some cash in a hot market before things cool off.
Could be used to bolster liquidity, bring on additional research analyst coverage, or the stuff previously mentioned
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