The purchased transaction is one form of financial arrangement that is often associated with an Initial Public Offer. It occurs when an underwriter, such as an investment bank or a syndicate, buys securities from the issuer before the initial prospectus is filed. An investment bank (or guarantor) acts as an agent rather than an agent and thus actually "walks long" in security. The bank negotiates the price with the issuer (usually at current market price discounts, if applicable).
The advantage of the deal purchased from the publisher's perspective is that they do not have to worry about financing risks (the risk that financing can only be done at too high a price to market prices.) This is different from a fully marketed offer. , in which the underwriter must "market" the offer to the prospective buyer, only after the price has been set.
Advantages of the deal purchased from the underwriter's perspective include:
- Purchased transactions are usually rewarded with greater discounts to the market than fully marketable transactions, and thus may be easier to sell; and
- Publishers/clients can only be willing to make transactions when purchased (as they eliminate execution or market risk.)
The disadvantage of a deal purchased from an underwriter's perspective is that if it can not sell securities, it must withhold it. This usually results from market prices falling below the issue price, which means underwriters lose money. Underwriters also use their capital, which may otherwise be better utilized (given the side-selling investment banks are usually not in the business of buying new securities issues).
Source of the article : Wikipedia
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