Question

Compare the private and public placement of the securities, its pluses and minuses...and refresh your answer with an example of any company that went through one or the other.

Answer 1

Point	Private Placement	Public Placement
Meaning	Private placement means issue of securities privately to one or more group of high net worth individuals (HNI) or institutional investors.	Public placement means issue of securities directly to the public at large including individual as well as institutional investors
Confidentiality	It is a privately negotiated transaction between the investors and the issuer and the financial data / valuation details are not necessarily made available to the public at large. The availability of such information to public is at the discretion of both the parties	In case of public placement, the offer is made directly to the public and hence more information is available
Regulation	Private placements are less regulated and have lesser compliance requirements in terms of depth and frequency of reporting saving time and money for issuer. This advantage helps companies or issuers or smaller size who are don't want to be restricted by reporting and compliance requirements.	Public placements are highly regulated and issuer has to comply with tighter security laws in terms of listing standards, financial reporting, composition of board of directors, annual meetings and proxy requirements. This disadvantage makes public placement costly for smaller companies or issuers
Intermediary	Private placements need not involve intermediary investment bank. The issuer can find and negotiate the transaction directly with the investors	Public issue is underwritten by one or more investment bank which is responsible for making securities available at large
Flotation cost	In private placement, there is no need of underwriter and hence there are no floatation costs	In public placement, floatation costs are included to compensate underwriter
Security Price fluctuations	In case of private placements in an unlisted company, price of the security can be much more stable and not prone to daily fluctuations.	Owing to highly liquid market, price of the security is more prone daily fluctuation after public placements
Market Interest	One drawback of private placement is lack of attention by the market and limited price discovery compared to public issue	Since the public placement is heavily marketed, it is possible to generate much more investor interest and a better price discovery
Investor Risk Appetite	Higher risk is borne by the investor and subsequent anticipation of upside is high	Risk by investor is lesser owing to higher liquidity and compliance requirements on the part of issuer
Example	Goldman Sachs was in a financial trouble during 2008 financial crisis and needed funding to survive. Warren Buffett’s Berkshire Hathaway bought $5 billion of preferred stock in Goldman Sachs. Despite Goldman Sachs being listed entity, the investment and transaction terms were negotiated privately by Berkshire Hathaway and Goldman Sachs without any underwriter. These terms were not offered to the other investors of Goldman Sachs. This is an example of Private Placement	Envista Holdings Corp, one of the largest global dental product companies, was listed on NYSE in September 2019. This is a public placement. Intermediaries viz. JP Morgan Chase, Goldman Sachs, Morgan Stanley ran the bookrunning process and issue was open to the public at large with proceeds of ~$590mn to the issuer. The securities are traded on NYSE and Envista needs to ensure higher compliance than that before the public issue