Private

placement

PRESENTED BY GROUP NO. 5

 What is private placement
What Is Private Placement?
Private placement occurs when a
Private placement occurs when a company
company makes an offering of securities
makes annot
offering of securities
to the public, nottotoanthe
but directly
individual
public, but directlyorto
a small group of investors.
an individual or a small
Such offerings do not need to be
group of investors. Such offerings do not
registered with the Securities and
need to be registered
Exchange with the(SEC)
Commission Securities
and areand
Exchangeexempt from the usual
Commission (SEC) reporting
and are exempt
requirements.
from the usual reporting requirements.
 Definition
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.
 Private Placement Memorandum
A legal document used in the private placement
industry that gives investors details about a
company’s business plan, investment information,
and other pertinent details. Private placements are
offerings of stocks or bonds that institutions or
accredited, wealthy individuals may participate in,
but which the public at large is excluded from.
The documentation that provides information on a
new security issue. It is similar to but less extensive
than a prospectus.
 Advantages
 Since private placements do not require the assistance
of brokers or underwriters, they are considerably less
expensive and time consuming.  
 With loan criteria for commercial bankers and
investment criteria for venture capitalists both
tightening, the private placement offering remains one
of the most viable alternatives for capital formation
available to companies
 unlike public stock offerings, private placements
enable small businesses to maintain their private
status.
 Disadvantages
Suitable investors may be difficult to locate,
for example, and may have limited funds to
invest.
privately placed securities are often sold at a
deep discount below their market value.
Companies that undertake a private placement
may also have to relinquish more equity,
because investors want compensation for
taking a greater risk.
Restrictions Affecting Private Placement

1) The SEC(Securities and Exchange Commission )

formerly placed many restrictions on private
placement transactions. For example, such offerings
could only be made to a limited number of
investors,
2) the company was required to establish strict criteria
for each investor to meet.
3) Furthermore, the SEC required private placement
of securities to be made only to "sophisticated"
investors—those capable of evaluating the merits
and understanding the risks associated with the
investment.
4) Many of the rules affecting private placements are
covered under Section 4(2) of the federal securities
law.
 Disclosure
1) Although the 1992 SEC revisions eliminated the requirement for
companies to prepare a Private Placement Memorandum for
investors, experts suggest that it is still a good idea.
2) The memorandum should describe the business, provide
background information on management, discuss the terms of the
offering, outline the company's capital structure before and after
the sale of securities, disclose the opportunities and risks involved
in the investment, and provide copies of financial statements.
3)Overall, the level of disclosure should be consistent with
applicable state and federal securities laws, as well as with the
sophistication of potential investors and the complexity of the
terms of the offering.
For companies needing investment capital, private placements
often save time and fees compared to public offerings. In early
2000 Healtheon/WebMD Corporation issued $930 million of new
stock directly to the Janus funds. From Healtheon's standpoint, the
issue was taken care of quickly without the need to pay a hefty fee
to the firm's investment banker, Morgan Stanley Dean Witter (now
Morgan Stanley). From Janus's standpoint, the firm was able to
obtain a small discount on a sizeable block of stock it wanted to
buy. In addition, Janus wasn't required to take a chance on bidding
up the price of Healtheon stock by buying shares in the open
market. Shares included in the private placement increased Janus's
stake in Healtheon from 3% to 12%, a relatively large position for a
mutual fund.
 Conclusion
A private placement activities will causes its board
of directors to assume additional responsibilities.
When drafting a private placement the board of
directors assure that the self dealing practices and
conflicts of interests cannot develop. The procedure
should be effect to detect any transactions that could
have an adverse effect on bank’s other functions,
such as lending or trust department activites.
Group members
SIDDHIJAGADE 12
NITISHA KOTHARI 25
JAYESH JAIN 66
MANSI TOGANI 58
HITESH JAIN 02
UJWAL DIGASKAR 07
Thank you