PRIVATE PLACEMENT

Private placement, the pre-market equity-market emission

A private placement is a private, non-public sale/trade (placement) of assets. A private placement can be seen as a placement of equity capital (e.g. participation certificates, dormant equity interest, stocks, etc.) at the ex-pit capital market. No engagement of banks and no complex due diligence is needed for going to the ex-pit capital market. Furthermore, strong regimentations of the stock exchange do not need to receive attention at a private emission. Private placements always take place under exclusion of the stock exchange (public emporium/market), so only some privileged private persons or institutions will be addressed directly.

At the private placement the company steers the extent and the speed of the capital procurement and is therefore relatively independent from the Financial Community which is dependent on banks. The company presents itself to the investors in the way how it grew historically and economically and how it can work best in the future from point of their view.

Also start-up companies can realize their equity-funding via a private placement. The placing company is so widely independent from external and internal parameters, respectively the company can react subsequently flexible and it can determine participation-conditions and result by itself. A private placement is an attractive form of funding in every stage of company-development.

The spectrum of offerable participation-options in the parameter of such an offer is much more attractive and wider than a stock floatation via the stock exchange and covers the complete sector of financial instruments inclusive the various forms of the Mezzanine-capital. Especially participations without stocks- and therefore more affordable participations without voting rights (partly with substantial tax advantages for company and investors) can be offered and distributed at the ex-pit financial market. Statistically, the share of private placements is rising steadily compared to bonds via the stock exchange.

The initial public offer

At the participation with a company via a private placement the investor buys pre-market preferred stocks of the company. Preferred stocks cannot be acquired at the public market, consequently not at banks or other financial service providers and have a sales-block agreement (lock up) for at least one year. The investor has the choice to switch his preferred stocks to tradable common stocks, partly or totally, before or at the initial public offer.

The value of the stock at the initial public offer is mostly 2 – 7 times higher than at the point of purchase as preferred stock, sometimes even higher. The advantage for the investor is that the stock already gained value, consequently the investor already has accomplished an acquired surplus already before the initial public offer.

Preferred stocks (aka privileged stock or priority share)

Preferred stocks are stocks that are treated with priority, compared to common stocks. That can be noticed at the distribution of dividends, where preferred stock holders get their distribution generally before the common stock holder.

Preferred stocks do not grant a voting right to the share holder, at the general meeting, like it is for common stock holders. But preferred stock holders often enjoy exclusive privileges. These privileges can be referenced to profit-sharing, design & refinement of the voting rights, entitlement of dividends, or the preference at the dispensation of the actual liquid balance.

Difficult to get: Preferred stocks are mostly limited at a high demand, because the price of one share is manifold cheaper than the later share-rate. Preferred stocks are not available at the stock exchange, because they are not tradable there. You can get preferred stocks only at two possible ways:

1) From the emitter (or emission source), meaning the corporation itself.

2) From asset managers in contact with the emitter.

The initial public offer of Google:

Those who invested money in Google in 2004, when the search engine vendor was still a little dot at the market, could enjoy a heavenly yield at the initial public offer.

It did not take long for Andy Bechtolsheim to pull out his checkbook. In summer 1998 the cofounder of Sun Microsystems and elder statesman of the Silicon-Valley already signed the first of two checks with 100,000 U.S. Dollar each, even before the Google-inventors Sergey Brin and Larry Page could explain their idea to the end.

The share of the Valley-veteran was worth more than 250 million U.S. Dollar at the initial public offer – that corresponds to a value 1250 times higher than his placed investment.