Bloomberg - The funding plan that sent shares of Blue Apron Holdings Inc. to market saturation is likely part of a bigger surge in U.S. rights offerings.
Shares in the meal-kit subscription service are up 40% since Wednesday announcement that it will raise $78 million - a windfall worth more than half of its market capitalization. The capital will come through a right offering and a pair of private placements. A rights offering is a way to raise equity capital from existing shareholders in proportion to their existing stake.
This alternative to a traditional sale of equity may not be dilutive, because shareholders have the option to participate. It s growing in popularity as companies look to feed into the second year pandemic. U.S. listed companies have announced more than $2.5 billion of investment proposals in 2021, according to Bloomberg - data compiled the most in three years.
More normal in other parts of the world, rights offerings can come into vogue among U.S. firms during periods when there is an excess of distressed balance sheets which weigh on valuations, said Anna Pinedo, co-leader of Mayer Brown LLP's capital markets practice.
I would say it is more indicative than episodic of a real change in norms, she said in an interview. We generally see right offering in clusters, oftentimes from a number of companies in the same sector - - or all midcaps. The market then stabilizes and there are more predictable trends, so companies revert to the norm and do traditional follow-ons. The current renaissance in U.S. equity offering is part of a broader wave of equity issuance that started when the market recovered from its pandemic lows in 2020. The stock sales frenzy escalated this week with first day pops for the first original public offerings that followed Labor Day, plus tens of billions raised by traditional secondary offerings.
On selecting a rights offering, Blue Apron may also have avoided the fees and discounts associated with traditional stock sales. Its deal was fully secured - meaning the company had already secured commitments to buy equity - a strategy that is also becoming more common due to the certainty it provides to the market. Blue Apron's structure of combining the offering with private placements is also the latest in a trend.
Often, the success of the rights offering is tied to whether there is a backstop bidder because it gives the market a whole lot more confidence the offerings are going to be successful, Pinedo said. Rights offerings that supplement the amount raised in a private placement helps mitigate any risk that existing stockholders feel deprived of the opportunity to participate in the placement.