What is a bought deal?

A bought deal is a type of securities offering in which the underwriter commits to buying the entire offering from the issuer company before a preliminary prospectus is filed. A bought deal eliminates the financing risk faced by the issuer company. In a bought deal, the underwriter purchases the entire offering from the issuer company.

What is a bought deal IPO?

In a bought deal, the investment bank or underwriter gives an assurance of buying the entire offering from the issuing company before a preliminary prospectus is filed. A bought-deal also gives an assurance to the issuer that the amount intended to be generated through an IPO will be realized. How does a Bought Deal Work?

Who benefits from a bought Deal strategy?

The buyer or underwriter also benefits from the bought deal strategy. Often, the discount applied to this type of volume purchase is significantly more than with fully marketed offerings, where an underwriter must actively market the shares to potential investors in order to set the purchase price.

What are the disadvantages of a bought deal?

The disadvantage of the bought deal from the underwriter's perspective is that if it cannot sell the securities, it must hold them. This is usually the result of the market price falling below the issue price, which means the underwriter loses money.