Wikipedia says: "Because rights offerings are unpopular, companies typically choose them as a last resort, perhaps due to insufficient investor demand."
Why are rights offering unpopular? Is it because a company would rather prefer to do a placement towards its larger shareholders instead of including all the small shareholders as well? What would be other options available to a rights offering for a company? Placements and follow-ons?
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ECM banker here - In my experience, rights offerings are generally used by low market cap companies, typically small pre-revenue HC, to raise more money through the equity market than they could with a straight common stock offering. Without a rights offering, it is very difficult for these companies to raise significant capital. Through rights offerings, I have seen companies raise more money than their pre-deal market cap.
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Thanks. But why is it easier for these companies to raise money in a rights offering compared with a follow-on, a placement, etc? Is it because rights offering is usually priced at a much larger discount and hence more attractive to investors?
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