Placement agent
Also called: placement agency, best-efforts agent, exclusive placement agent
A broker-dealer hired to find investors for a company's offering on a best-efforts basis, paid a cash fee and often warrants, without committing to buy the securities itself.
Last verified
How it works
In a registered direct offering, a PIPE or a warrant inducement, a company usually engages a placement agent under an engagement letter or placement agency agreement. The agent contacts investors and arranges the sale on a best-efforts basis: it does not buy the securities and does not promise that any will be sold.
That differs from a firm-commitment underwriting, where the underwriter buys the whole offering from the company and resells it, taking the risk that it cannot.
How agents are paid
Compensation typically includes:
- a cash fee, commonly a mid-to-high single-digit percentage of gross proceeds;
- a management fee and reimbursed expenses;
- placement agent warrants, often covering a percentage of the shares sold, at an exercise price at or above the offering price;
- sometimes a "tail": a fee on future financings with investors the agent introduced, for a period after the engagement ends.
Worked example
Hypothetical: Company X raises $5,000,000 in a registered direct. The agent receives a 7% cash fee ($350,000), a 1% management fee ($50,000), $100,000 of expenses, and warrants for 5% of the 2,500,000 shares sold (125,000 warrants). Company X nets $4,500,000, and the agent's warrants add to the overhang.
Why it matters
Agent compensation reduces net proceeds, and the warrants are an additional source of future shares. Engagement terms such as rights of first refusal on future financings can also shape how a company raises money next.
How to spot it
The "Plan of Distribution" section of the 424B5 or S-1 names the agent and describes fees, warrants and any tail or right of first refusal. The placement agency agreement is usually an exhibit to the 8-K. See Spotting the lender.
Related terms
Guides that use this term
Dilution 101 · 6 min read
At-the-Market (ATM) Offerings: How Companies Sell Shares a Little at a Time
How an ATM program works, what a sales agreement and prospectus supplement say, how fast an ATM can be used, and where its sales show up later.
Dilution 101 · 6 min read
Registered Direct vs PIPE vs Underwritten Offering, Compared
The three common ways small companies sell a block of shares at a fixed price, how each is registered and disclosed, and what the fees do to net proceeds.
Dilution 101 · 6 min read
How to Read a 424B5 Prospectus Supplement in Five Minutes
A section-by-section route through a 424B5, the filing that announces a shelf takedown, with the dilution table math worked out and a checklist.
Toxic financing · 6 min read
Spotting the Lender: Finding Deal Terms and Counterparties in SEC Filings
Where a financing's terms and counterparty are disclosed, from 8-K Items 1.01 and 3.02 to the securities purchase agreement exhibit, with a phrase checklist.
Toxic financing · 5 min read
Warrant Inducements: Repricing Old Warrants for Cash and New Warrants
How warrant inducement deals work, why holders get new warrants for exercising early, and how to calculate the shares added now and later.
Toxic financing · 6 min read
Concurrent Private Placement Warrants: The Second Half of a Registered Direct
Why registered direct offerings often come with unregistered warrants in a concurrent private placement, and how to count the shares they add later.
Toxic financing · 6 min read
Reading Counterparty Disclosures: Holders, Placement Agents and Selling Shareholders
How to read the sections of a prospectus and 8-K that name who is on the other side of a financing, what they are paid, and how many shares they can sell.
Offerings & deals · 5 min read
Form S-1 Explained: IPO vs Resale Registrations, S-1/A and Effectiveness
How a Form S-1 moves from first filing to effectiveness, the difference between an IPO S-1 and a resale S-1, and what 424B4 and 424B3 mean.
Offerings & deals · 5 min read
Form D and Regulation D: Rule 506(b), 506(c) and the 15-Day Filing
What Form D discloses, how Rule 506(b) and 506(c) private placements differ, how the 15-day deadline works, and why public companies file Form D.