250 B.E. Eckbo et al.
Ta b l e 2
Flotation methods used to sell various types of securitiesSecurity type Flotation method
IPOs Firm commitments, Auctions, Direct offerings, Private placements, Best efforts,
Privatization methods, Mutual to stock conversions
SEOs Firm commitments, Shelf issues, Universal shelf issues, Private placements,
Direct offerings, Rights, Standbys, Auctions, Best efforts, Equity financed
acquisitions, PIPES, DRIPS, ESOPs, Equity based bonus plans, Equity for debt
exchange offers and swaps, Privatization methods
Convertible offers Firm commitments, Private placements, Auctions, Direct offerings, Shelf
issues, Universal shelf issues, Convertible debt for equity exchange offers and
swaps, Convertible debt financed acquisitions
Debt offers Firm commitments, Private placements, Auctions, Shelf issues, Universal shelf
issues, Debt for equity exchange offers and swaps, Debt financed acquisitions
Private debt Direct offerings, Private placements, Venture capital
Private equity Direct offerings, Private placements, Venture capital
A detailed economic analysis of the flotation method choice is given in Section4,
below. As indicated there, the importance of the various flotation methods listed inTa -
ble 1varies across countries, with issuers in larger capital markets exhibiting different
preferences than those in smaller capital markets. In the U.S. nearly all IPOs are sold
through a book building mechanism. Internationally, a firm commitment contract with
book building is the dominant IPO issuance method in most large capital markets, while
auction methods are dominant in smaller capital markets with more concentrated share
ownership. For evidence that IPO flotation methods vary across countries, see the survey
of international IPOs byLoughran, Ritter, and Rydqvist (1994), andRitter (2003).
Table 2describes the flotation methods used to sell various types of securities. As
the table highlights, seasoned equity issues and debt issues use a wider array of of-
fering methods. Debt offerings tend to rely on the same flotation methods as seasoned
equity issues. In the U.S., the primary SEO flotation methods are: firm commitment
underwritten offers (either syndicated or not, U.S. or global), shelf registered offers (ei-
ther equity or universal), standby underwritten rights offers, rights offers, best efforts,
direct issues and private placements. Outside the U.S., the primary flotation methods
used are rights and standby offers, however, auctions, bought deals, installment sales
and other methods are also important. Some capital markets have their own particular
flotation methods including the U.K., France and Singapore. Privatization methods tend
to be very idiosyncratic across countries as is highlighted in a survey byMegginson and
Netter (2001).
IPO flotation methods vary across capital markets of differing size as discussed in
Loughran, Ritter, and Rydqvist (1994), andRitter (2003). In the U.S. nearly all IPOs