What Is a Piggyback Registration?
Piggyback registration refers to a way of promoting shares by way of an initial public offering (IPO). It’s usually utilized by early buyers, founders, and different firm insiders who negotiated the suitable to promote their shares as a part of any future IPO.
In contrast to demand registration, the place shareholders are entitled to demand that an organization undertake an IPO, buyers counting on piggyback registration to promote their shares do not need the suitable to pressure an IPO. As a substitute, they need to await the IPO to be demanded by different buyers, successfully “piggybacking” on different buyers’ demand registration rights.
- Piggyback registration is a technique of promoting shares by way of an IPO.
- Traders counting on piggyback registration can not pressure an IPO to occur; they’re reliant on the demand registration rights of different buyers.
- The primary drawbacks of piggyback registration are its lack of management over the timing of an IPO and the truth that it’s usually handled as a decrease precedence by underwriters.
How Piggyback Registrations Work
When an organization is transferring towards an IPO, some buyers could want to place themselves to promote their shares as quickly as the corporate goes public. To that finish, these buyers can foyer the corporate’s IPO underwriter to incorporate their shares together with the broader pool of shares being bought within the IPO. If their request is accepted by the underwriter, then these buyers’ shares can be known as a “piggyback registration” and can be disclosed as a part of the IPO’s prospectus documents.
From the corporate’s perspective, piggyback registrations are a handy technique to permit a wide range of early funders and different insiders to exit their investments and make room for brand spanking new buyers who is likely to be extra within the long-term prospects of the corporate. In spite of everything, corporations will usually undergo a number of stages of fundraising of their early years, with every investor bringing their very own funding fashion, aims, and time horizon. A lot of these buyers are prone to view an upcoming IPO as a handy time to money in on their funding.
Other than the truth that they don’t permit their holder to find out the timing of their exit, the second main downside of utilizing a piggyback registration is that they’re typically given decrease precedence than demand registrations by underwriters. In apply, which means that if the underwriter believes that there’s inadequate market demand to promote the entire shares that buyers want to promote by way of the IPO, some or the entire piggybacking buyers could also be unable to take part.
Instance of a Piggyback Registration
Michaela is the director of XYZ Capital Companions, a venture capital (VC) firm specializing in corporations anticipated to IPO inside 5 years. As a part of her funding technique, Michaela is cautious to solely put money into corporations which have already acquired funding from different capital suppliers which have a demonstrated monitor report of guiding the businesses they put money into by way of to profitable IPOs.
Whereas these different buyers typically insist on-demand registration rights when negotiating their investments, XYZ particularly opts for piggyback registration rights. Since piggyback registration rights are technically inferior to demand registration rights from a authorized perspective, XYZ is usually in a position to negotiate barely higher phrases in different areas of the negotiation. Furthermore, by solely partnering in ventures which might be extremely prone to IPO, XYZ is mostly in a position to successfully exit its place by piggybacking on the demand rights of the opposite buyers.