Series 79: Structuring The Private Placement And Finalizing The Offering

Structuring the Private Placement and Finalizing the Offering

At the inception of the offering, the issuer and its investment banker have, or should have, a good general idea of how the private placement should be structured. Factors relevant to the structural analysis include the type of business entity, whether the business has assets that can be collateralized, what its capital requirements are, what degree of dilution is acceptable, and whether an existing majority shareholder or founder is willing to give up control.

A private placement is not necessarily a take-it-or-leave-it proposition, and specific terms are often negotiated between the issuer and the investors. The most contentious issue to be addressed is usually the company’s valuation, which in an equity offering determines the price of the securities and the ownership percentage new investors will enjoy. The parties can often avoid battles over valuation and control by placing convertible debt ra