By: Pratik Sharma

It is a process by which an investor (usually the investment banker) buys out a significant portion of the equity of an unlisted company with a view to make it public within an agreed time frame. In investment banking, a securities offering where an investment bank commits to buy the entire offering from the client company. A bought deal eliminates the financing risk for the company, which is able to ensure that it raises the intended amount of funds from the securities offering; however, the client firm will likely get a lower price by taking this approach. A bought deal is more risky for the investment bank, because it must then try to sell the securities to other investors. The investment bank takes all of the risk that the securities may not be able to be sold, or more commonly, that they may lose value before they can be sold, resulting in a net loss. To offset this risk, the investment bank often negotiates a significant discount when buying the offering from the client. If the deal is large, an investment bank may team up with other banks and form a syndicate so that each firm bears only a portion of the risk.

Parties
Outright Sale Syndicate Sales Price Fund based Listing OTCEI

Speedy Sale
Freedom Investors Protection Quality Offer

Loss of Control
Loss of Sales Wrong Appraisal Manipulation

It is a method of issue of securities in the primary market in which the issuing company does not offer the securities to investors in general, rather they are sold to selected big institutional clients only that may be selected in conformity with the merchant banker. The sale of securities to a relatively small number of select investors as a way of raising capital. Investors involved in private placements are usually large banks, mutual funds, insurance companies and pension funds. Private placement is the opposite of a public issue, in which securities are made available for sale on the open market.

Selection of own investors

Cost Effective Returns and Flexibility

Difficult in raising the Huge Amount

Buy out only when the cost is substantially lower than the projected cost of the company

PRIVATE PLACEMENT

BOUGHT OUT DEALS

Listed Securities Results in creation of additional securities for the buying institutions. Five years

Unlisted Securities Securities are simply transferred from promoters to sponsors who in turn off-load them to the public. 18 months