Takedown (Stock Issuance) - Explained
What is a Takedown?
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Table of ContentsWhat is a Takedown in a Stock Issuance?How does a Takedown Work? Shelf OfferingsAcademic Research on Takedown Schedule
What is a Takedown in a Stock Issuance?
The price of a bond, stock, or any other security offered on the open market is known as the takedown. The takedown is a major determinant of the spread or commission which underwriters will receive upon the purchase of the securities from them, by the public. The investment banking syndicate members will receive a full takedown once they have underwritten public offerings of bonds, stocks, or any forms of securities. A portion of the takedown is received by dealers who are outside of the syndicate. Thus, the remaining balance remains in the custody of the syndicate.
How does a Takedown Work?
An underwriter is hired by the time a company offers new issues like publicly traded stocks or bonds. This underwriter could be an investment banking syndicate whose function is to supervise the process of bringing the new issues into the market. The syndicate members bear the majority of the risk inherent in introducing new securities offerings to market. In return, these syndicate members receive most of the profit generated from selling each share. The commission or spread of a specific offering is known as the initial profit made from selling it. Once it has been sold, the spread has to be split among the members of the syndicate or other salespeople responsible for its sale. Usually, the syndicate divides the spread into the managers fee and the takedown. In this context, the takedown is the profit which a syndicate member generated from selling an offering, and usually, the managers fee would represent a lesser fraction of the spread. For instance, assuming the takedown is $2, $0.30 may be the managers fee. So $1.70 is the total takedown that is paid to the syndicate members. The reason is that the syndicate members have already fronted the money to buy the securities themselves, and thus assume more risk from selling the offering. There may be other fees that would be removed from the takedown. For instance, members of a selling group who havent fronted the money to buy shares to sell to the public may be paid a concession. Additional takedown refers to the profit which syndicate members made on sales of this kind.
In a shelf offering, a take down of securities off the shelf is done by underwriters. A shelf offering permits a company to generate income from selling a stock over time. For instance, if Company A has already issued some common stock, but is interested in issuing more stock so as to generate some money for expansion, an update of equipment or funding of other expenses, a shelf offering permits its issuance of a new series of stock which offers various dividends to stockholders. In this context, Company A is said to be taking down the stock offering off the shelf. The Securities and Exchange Commission (SEC) allows the registration of shelf offerings by companies for up to three years. This implies that in a case where a shelf offering was registered by Company A for an advanced period of three years, it would have exactly three years to sell off the shares. If it does not sell the shares within the specified period, it can fill replacement registration statements in order to extend the offering period.
Academic Research on Takedown Schedule
- Private Equity Funds: What Counts and What Doesn't, Bartlett, J. W., & Swan, W. E. (2000). J. Corp. L., 26, 393.
- Credit line takedown and endogenous bank capital, Stanhouse, B., & Stock, D. (2016). Review of Quantitative Finance and Accounting, 46(4), 691-723.
- Cash dilution in illiquid funds, Everts, M. (2002).
- Forward Investment Commitments of Life Insurance Companies, O'Leary, J. J. (1960). In The Quality and Economic Significance of Anticipations Data (pp. 325-350). Princeton University Press.
- Basis risk, partial takedown and hedging by financial intermediaries, Morgan, G. E., & Smith, S. D. (1986). Journal of Banking & Finance, 10(4), 467-490.
- Evaluating the venture capital fund agreement, Brophy, D. J., & Haessler, M. R. (1994). Managerial Finance, 20(1), 53-64.
- Project Financing for the Small Independent Company, Ramsay Jr, H. J. (1983, January). In SPE Hydrocarbon Economics and Evaluation Symposium. Society of Petroleum Engineers.
- Self-assessment: implications for UK tax compliance costs for non schedule D case 1 taxpayers, Antwi, F. N. (2006).(Doctoral dissertation, University of East Anglia).
- Some aspects of the economics of the work schedule., Halliwell, M. (1985). (Doctoral dissertation, University of Kent).
- Private-Equity-Fonds, Jesch, T. A. (2004). (pp. 135-139). Gabler Verlag.