In the news last week, a Canadian company announced a private placement offering. That led to the question, what is that exactly? A private placement offering is a way for a company (public or private) to raise capital. However, it differs from a regular public offering where securities are made available for sale in the open market to any type of investor, typically through a stock exchange for common shares.
In a private placement offering a company offers securities to a small number of selected investors. This small pool of investors often includes banks, mutual funds, insurance companies, pension funds and other accredited investors.
A private placement offering can be beneficial for some companies as it has fewer requirements than a public offering and can typically be organized much faster and at a lower cost. A private placement offering does not require a prospectus and generally does not need to be reviewed by a securities regulator prior to the offering. Companies that complete a private placement offering must file a report of trade for the distribution. The terms of this exemption can be found in National Instrument 45-106: Prospectus Exemptions.