Private Placement

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Private Placements

Let's face it - capital is the key ingredient to building a thriving business and fueling its growth. And there's no other way around it. As a small start-up, fundraising often begins with the "seed" round, funded by friends and family.

But as the business gains steady momentum, seed money alone isn't sufficient. So you'll have to look at other funding options and soon. An incredible option available to publicly traded companies is a private placement.

So public companies can do private placements as a secondary stock offering. Read on to find out how XCell Fund expertly helps you avail the benefits of private placements.

What You Need to Know About Private Placement

So what exactly is a private placement? It is an offering of unregistered securities to a limited pool of investors. You get to sell shares of stock or other interest in the company, such as bonds or warrants, in exchange for cash.

Some examples of the types of securities that may be sold through a private placement are:

Common stock
Preferred stock
Promissory notes

Experts over at XCell Fund can analyze your unique business. And help you decide which of these will yield the most advantages for you in a private placement.

Effect of Private Placement Offering on Share Price for Public Companies

Here's what really happens in a private placement as a secondary stock option:

A secondary issuance of additional stock takes place
The percentage of equity ownership for existing shareholders is diluted
The total number of shares outstanding increases

It is important to remember one thing here:

The extent of the dilution is proportionate to the size of the private placement offering.

But with that said, the long-term effect of a private placement on share price is muchFss certain. And it depends on how effectively you use the extra capital raised in the company. An important factor in determining the long-term share price is the company's reason for the private placement.

For instance, your reason for the private placement was that you wanted to avail an opportunity for rapid growth. And that simply required additional financing. In that case, the eventual extra profits realized may push your company's stock price substantially higher.

On the other hand, you hold a private placement to mitigate debt or save the company from bankruptcy. That doesn't bode well for the share price in the long run.

Why Public Companies Choose to Hold Private Placements

Companies issue in the private placement market for a variety of reasons, including:

A desire to access long-term, fixed-rate capital
Diversify financing sources
Add additional financing capacity beyond existing investors (banks, private equity, etc.)

The Many Advantages of Private Placements for Public Companies

Private placements present the following advantages:

It provides a long-term solution, offering longer maturities than typical bank financing. That is ideal for when your company wants to seize a growth opportunity that wouldn't yield an instant return on investment.
Companies get to enjoy speed in execution. It is typically faster to issue a private placement versus a corporate bond in the public market. That is because the growth and maturity of the private placement market have led to increased capacity for financings.
They complement existing financing. Since you can customize the terms, private placements can complement existing bank debt. Hence, allowing your company to manage its debt obligations better.
You get to enjoy privacy and control. Private placement transactions are negotiated confidentially and have limited public disclosure requirements.
Private placements also help diversify a company's capital and capital structure sources. And the diversification of funding sources is essential when bank liquidity may be tight during market cycles.

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How XCell Fund Does Private Placement

Here's how XCell Fund conducts private placements:

Deal Launch is the first step where you open the window of time from the offer to investors to when the investors must decide, typically 1-3 weeks.
Next, in the Negotiation step, the issuing company and the investor discuss the specifics of the investment. These include legal terms, pricing, etc.
During the Information Gatheringstep, the investor will:
- Review and verify the company's financial statements,
- Meet with the management team,
Assess its long-term outlook and market position, etc.
Then the investor will determine a credit rating for the company issuing the private placement. That will reflect how capable the issuer is of making interest in the Investment Risk Analysis
After that, the Pricing step begins, where the investor determines what interest rate is needed to compensate for the associated risk.
Once your company and the investor reach an agreement on a spread, you can move to the Rate Lockstep. Both parties involved agree to lock in the interest rate based on the agreed-upon spread and the prevailing U.S. Treasury rate at a specific day and time.
Finally, in the Closing, your company transfers the offered security to the investor. And in turn, the investor provides you with the capital they agreed to pay for it.

Let's Work Together Today

The process for issuing a private placement may seem daunting at first. But an experienced firm can guide you in the best way. And what better option than XCell Fund, the most dedicated business investment firm?

Are you interested in holding a private placement for your public company? Then contact XCell Fund today. We would be happy to discuss how a private placement could work for you.