skills/capital-markets-issuance/references/ecm.md

# ECM issuance guidance

Use this reference for ipo, follow-on, block, atm, pipe, rights offering, secondary sale, and other equity issuance work.

## Table Of Contents

- [Senior framing](#senior-framing)
- [Common ECM instruments](#common-ecm-instruments)
- [ECM sizing logic](#ecm-sizing-logic)
- [ECM pricing logic](#ecm-pricing-logic)
- [ECM investor objections](#ecm-investor-objections)
- [ECM output checklist](#ecm-output-checklist)

## Senior framing
Equity issuance is a signaling event. Investors ask: why now, why this amount, why this price, and what does management know that we do not? The answer must make dilution feel like value creation or risk reduction.

## Common ECM instruments

### IPO
Best for private companies seeking public currency, sponsor exits, employee liquidity, growth capital, or strategic visibility.

Evaluate:
- public-company readiness: audit, controls, governance, reporting, forecastability;
- equity story simplicity and durability;
- scale, growth, margins, fcf, and kpi quality;
- peer trading, sector appetite, ipo calendar, and aftermarket performance;
- primary/secondary mix and float;
- valuation support and investor education needs;
- lockup strategy and sponsor/founder overhang.

MD judgment:
- A market can be open for marquee issuers but closed for complex stories.
- IPO success is not just pricing; it is durable aftermarket performance and future access.
- Avoid over-sizing secondary shares if it weakens insider alignment.

### Follow-on offering
Best for public issuers with a clear primary need, adequate float/liquidity, and supportive shareholder base.

Evaluate:
- use of proceeds and dilution tolerance;
- deal size as % market cap, % float, and days of adv;
- stock performance and support levels;
- existing top-holder appetite;
- guidance/revision trend and upcoming earnings;
- shelf eligibility and blackout status;
- discount range and allocation strategy.

MD judgment:
- The best follow-ons are anchored by existing long-only conviction, not just fast-money demand.
- A technically feasible raise may still be strategically wrong if it signals weak results before earnings.
- Launch after a positive catalyst when possible, unless urgency requires pre-event capital.

### Block trade / secondary selldown
Best for sponsor or insider monetization, reducing overhang, or increasing float.

Evaluate:
- seller identity and remaining ownership;
- lockup duration and future sell-down risk;
- block size versus float/adv;
- bought deal vs wall-crossed vs marketed block;
- discount required for size and market risk;
- effect on trading liquidity and shareholder base.

MD judgment:
- A block can be positive if it clears an overhang; negative if it signals informed selling.
- Retained ownership and lockup are often as important as price.

### ATM program
Best for repeat small issuance where immediate proceeds certainty is not required.

Evaluate:
- trading liquidity and cadence;
- disclosure controls;
- valuation sensitivity;
- investor tolerance for ongoing issuance;
- sector norms, especially reits, utilities, biotech, and frequent issuers.

MD judgment:
- ATMs minimize market impact but do not solve urgent capital needs.
- Overuse can create a constant technical overhang.

### PIPE / private placement
Best when speed, certainty, confidentiality, strategic investor participation, or public-market fragility matters.

Evaluate:
- discount and warrant/registration-rights economics;
- investor quality and signaling;
- governance/control rights;
- resale registration timing;
- mnpi and wall-crossing protocols;
- alternative public execution feasibility.

MD judgment:
- A high-quality strategic PIPE can validate the story; a punitive PIPE can signal distress.
- Control and governance terms may matter more than headline price.

### Rights offering
Best when fairness to existing holders, control preservation, or distressed recap dynamics matter.

Evaluate:
- subscription price and discount;
- transferable vs non-transferable rights;
- backstop provider and fee;
- timing complexity;
- shareholder participation expectations;
- governance implications.

MD judgment:
- Rights offerings can be fair but operationally complex and slower than a marketed raise.
- Backstop economics must be explained carefully.

## ECM sizing logic
Use a range:
- **minimum viable size**: amount needed to solve the stated problem;
- **base recommended size**: amount likely to clear with quality demand;
- **stretch size**: amount possible with strong anchor feedback;
- **maximum advisable size**: size beyond which discount, dilution, or aftermarket risk becomes unacceptable.

Consider:
- proceeds need;
- deal size as % market cap and % float;
- days of adv;
- volatility and short interest;
- existing holder concentration;
- use-of-proceeds strength;
- market window and sector supply;
- future capital needs.

## ECM pricing logic
Do not imply precision. Provide a range and what it depends on.

Fields:
- last close, vwaps, unaffected price where relevant;
- base discount range;
- aggressive and conservative cases;
- block discount if secondary;
- pipe/rights discount if private or pro rata;
- underwriting risk and fee assumptions;
- expected aftermarket support.

Language:
- "likely clearing range";
- "requires anchor demand";
- "too large without wider discount";
- "should not be base case before earnings";
- "feasible but likely signaling-negative".

## ECM investor objections
Prepare responses to:
- why raise now;
- why not wait for earnings or catalyst;
- dilution vs value creation;
- use-of-proceeds specificity;
- whether management is signaling weakness;
- sponsor/insider selling overhang;
- guidance confidence;
- valuation support;
- ability to deploy capital above cost of capital;
- future issuance risk.

## ECM output checklist
A complete ECM view includes:
- transaction rationale;
- size and discount range;
- dilution/pro forma ownership;
- market-window assessment;
- key comps with aftermarket performance;
- anchor/core investor targets;
- launch conditions and blackout/catalyst calendar;
- communications and wall-crossing considerations;
- fallback: smaller raise, pipe, atm, convertible, delayed launch, or no issuance.