Secondary offering

A secondary offering is a sale of shares that already exist, typically by a large existing shareholder such as a founder, an early investor, or a private equity firm, rather than a sale of new shares created by the company. The proceeds from a secondary offering go to the selling shareholder, not to the company itself, so no new capital is raised for the business.

Because no new shares are created, a secondary offering does not dilute other shareholders the way a follow-on offering of new shares does, though it does increase the number of shares actively trading in the market, which can improve liquidity and, over time, help the stock qualify for broader index inclusion. Secondary offerings are a common way for early investors and private equity sponsors to sell down a large stake after a company has been public for a while, once any lockup period has expired.

The market's reaction to a secondary offering is usually milder than to a follow-on offering, since it does not change the company's share count or capital position, though a very large secondary sale can still put temporary pressure on the stock simply from the added supply hitting the market, and it can sometimes raise questions about why a major insider is choosing to sell now.