Private Placement Method

Methods of Marketing Securities

Following are the various methods being adopted by corporate entities for marketing the securities in the New Issue Market:

1. Pure Prospectus Method

2.     Offer for Sale Method

3.     Private Placement Method

4.     Initial public Offers (IPOs) Method

5.     Rights Issue Method

6.     Bonus Issue Method

7.     Book-building Method

8.     Stock Option Method and

9.     Bought-out Deals Method

Private Placement Method

Meaning

A method of marketing of securities whereby the issuer makes the offer of sale of individuals and institutions privately without the issue of a prospectus is known as Private Placement Method.

Features

Under this method, securities are offered directly to large buyers with the help of share brokers. This method works in a manner similar to the Offer for Sale Method whereby securities are first sold to intermediaries such as issues houses, etc.

Advantages

Private placement of securities offers the following advantages:

1.     Less expensive as various types of costs associated with the issue are borne by the issue houses and other intermediaries.

2.     Placement of securities suits the requirements of small companies.

3.     The method is also resorted to when the stock market is dull and the public response to the issue is doubtful.

Disadvantages

The major weaknesses of the private placement of securities are as follows:

1.     Concentration of securities in a few hands.

2.     Creating artificial scarcity for the securities thus jacking up the prices temporarily and misleading general public.

3.     Depriving the common investors of an opportunity to subscribe to the issue, thus affecting their confidence levels.