Registration Process: Private Placements
With a private offering, the issuer selects a sort of underwriter called a placement agent or a deal manager to place the securities with investors. The placement agent is usually a registered investment banker or broker-dealer, and the terms under which the agent works are negotiated by the two parties and set forth in a private placement agreement. The private placement agreement is similar to the underwriting agreement in a public offering. The placement agent is usually employed in a “best efforts” arrangement, where the agent is not obligated to purchase any securities or guarantee success.
Instead of using a placement agent, issuers may opt to employ a finder to locate potential investors. Finders may be registered broker-dealers, but usually they are not. Finders do not have to be registered as long as they limit their activities to introducing prospective investors to an issuer. They cannot by law promote or recommend securities to a prospective investor, develop terms, or negotiate for either the issuer or investor. Companies generally prefer to employ a placement agent, although finders may be more willing to work with younger, smaller companies.
The issuer of the private placement will draft a private placement memorandum (PPM). Similar