When companies need to raise money without making a big splash, they often turn to a strategy that operates quietly yet effectively: the At-The-Market (“ATM”) offering. Unlike flashy IPOs or massive public offerings that dominate headlines, ATM offerings are flexible, efficient, and often fly under the radar. They allow companies to tap into the market for funds on their own terms. This approach also minimizes the impact on the stock price and avoids the necessity of offering significant discounts to attract large investors, making ATM offerings an attractive option for companies seeking to quietly and efficiently bolster their financial position.
In this article, we’ll explore how ATM offerings work, why companies love them, and what investors need to watch out for. Whether you’re a seasoned trader or just curious about how companies raise capital, understanding the mechanics and impact of ATMs can give you major insight into the financial world’s best-kept secret.
What is an ATM offering and how does it work?
An ATM offering is a type of equity offering where a publicly traded company sells newly issued shares directly into the open market through a broker-dealer, at prevailing market prices. Instead of offering a fixed number of shares at a predetermined price, the company can sell shares incrementally over time, based on market conditions and its funding needs. This method gives companies the ability to raise capital on a flexible, as-needed basis — hence the term “at the market.”
To initiate an ATM offering, a company must file a Prospectus Supplement under its existing shelf Registration Statement (Form S-3, or Form F-3 for foreign entities) with the Securities and Exchange Commission (“SEC”). The Registration Statement allows the company to issue securities over time, and the Prospectus Supplement outlines the specific terms of the ATM program, including the maximum amount to be raised, the reasons for the fundraising, the broker-dealer or investment bank involved (known as the “sales agent”), the risks associated with the program, and other key information. In cases where there is a significant time gap between the filing of the Shelf Registration Statement and the Prospectus Supplement, and if the Prospectus Supplement includes new or updated financial statements not originally part of the Shelf Registration, the company may also need to file an updated auditor’s consent letter, which ensures that the auditors have authorized the use of their audit report in the updated filing.
Once this filing is complete, the ATM program becomes effective, and the company partners with its sales agent to execute the sale of shares. The sales agent sells the company’s shares into the open market on a best-efforts basis, typically earning a small commission for each transaction. Unlike a traditional offering, which involves the sales of a large block of shares all at once, an ATM offering allows the company to sell shares gradually, in smaller increments, at prevailing market prices. This flexibility enables companies to take advantage of favorable market conditions and avoid selling shares at a huge discount. As shares are sold, the company receives the funds, which are often used for general corporate purposes such as paying down debt, funding operations, research and development, strategic acquisitions, or expanding production and operational capacity.
Benefits and Risks of ATM Offerings
ATM offerings offer several strategic advantages for companies. First, they provide flexibility, allowing companies to raise capital as needed without the pressure of selling a large amount of equity all at once. This helps reduce the potential immediate dilution of existing shareholders, as shares are sold incrementally, rather than flooding the market with a large issuance. Additionally, ATMs are cost-efficient compared to traditional follow-on offerings, as they do not require extensive marketing efforts like roadshows. Shares are sold at prevailing market prices, avoiding the need to price shares at a significant discount to attract institutional investors. Once the program is in place, companies can access funds quickly without having to initiate a new offering process each time capital is needed. Nevertheless, companies considering to establish an ATM program should be mindful that although ATMs are designed to minimize market disruption, consistent selling pressure from the company can weigh on the stock price if not managed carefully. Frequent use of ATM offerings can also raise concerns among investors about a company’s financial health, especially if it appears to be in constant need of cash. Companies must strike a balance between leveraging the flexibility of ATM programs and maintaining investor confidence.
For investors, ATM offerings provide a certain degree of transparency, as they are disclosed publicly and sales are reported in regular financial filings. Additionally, because shares are sold incrementally, ATMs are less likely to disrupt the stock’s price compared to large, one-time offerings. However, existing shareholders should be aware that as new shares are issued, they may experience dilution, meaning their ownership percentage in the company decreases. This dilution, while gradual, can still impact shareholder value over time.
Strategic use cases for ATM offerings
ATM offerings are especially beneficial for companies that require ongoing access to capital to support growth and innovation. They are widely used by biotech and technology companies, as well as small-cap firms, which often need substantial funding for long-term research and development, operational expenses, or strategic acquisitions. These companies may lack the consistent cash flows to rely on traditional financing methods, making ATM offerings an ideal solution.
A prominent example of successful ATM offerings comes from Tesla, Inc. (NASDAQ: TSLA), which conducted two ATM programs within three months in 2020, raising a total of $10 billion to support its aggressive expansion plans. The first ATM offering, which attempted to raise $5 billion, was effective on September 1, 20201, during a period of significant stock price appreciation following Tesla’s 5-for-1 stock split in August 2020. Building on the success of the September program, Tesla launched a second ATM offering on December 8, 2020, raising another $5 billion2.
While some analysts raised valid concerns about shareholder dilution and its impact on Tesla’s ROE3, Tesla’s stock price soared following its inclusion in the S&P 500 index, which significantly increased demand for its shares. This reflected the market’s then bullish outlook on the electric vehicle industry and Tesla’s dominant position within it.
Final thoughts
ATM offerings might not grab headlines like IPOs or large public offerings, but they’re a flexible and efficient way for companies to raise money on their own terms. Tesla’s example offers a roadmap for using ATMs effectively — by timing offerings strategically and communicating a clear growth vision, businesses can raise significant capital while minimizing investors’ concern on shareholder dilution.
At the end of the day, Tesla’s success showcases the potential of ATM offerings to drive growth in high-demand industries and transform companies into market leaders. Sometimes, the quietest strategies can deliver the biggest results. If anything, they’re worth keeping an eye on — for companies looking to grow and for investors looking to understand the bigger picture.
- https://www.sec.gov/Archives/edgar/data/1318605/000119312520236678/d21598d8k.htm ↩︎
- https://www.sec.gov/Archives/edgar/data/1318605/000119312520312194/d60067d8k.htm ↩︎
- https://www.forbes.com/sites/jimcollins/2020/12/08/yet-another-stock-offering-will-further-pressure-teslas-already-pathetically-low-roe/ ↩︎
