Listen to a Business English Dialogue about Bought deals
Bruce: Hi Brooklyn, have you heard about “bought deals” in business and finance?
Brooklyn: Yes, Bruce. A bought deal is when an investment bank or underwriter agrees to purchase all the shares of a company’s stock issue, regardless of whether they can resell them.
Bruce: That’s correct. Bought deals are often used for initial public offerings (IPOs) or secondary offerings to ensure the company raises the necessary funds without the risk of unsold shares.
Brooklyn: Are there any advantages for companies in using bought deals?
Bruce: Yes, there are. Bought deals provide certainty of funds, expedite the capital-raising process, and reduce the risk of price fluctuations associated with traditional offerings.
Brooklyn: I see. So, it’s a way for companies to secure financing quickly and efficiently.
Bruce: Exactly. It allows companies to focus on their business operations rather than worrying about whether their offering will be fully subscribed.
Brooklyn: Are there any risks or drawbacks to using bought deals?
Bruce: Yes, there can be. If the underwriter is unable to resell the shares at a profit, they may incur losses, and the company may face reputational damage if the offering is perceived as unsuccessful.
Brooklyn: I see. So, it’s essential for companies and underwriters to carefully assess market conditions and pricing before entering into a bought deal.
Bruce: Yes, that’s correct. Both parties need to ensure that the terms of the deal are favorable and align with their financial objectives.
Brooklyn: Thanks for explaining bought deals, Bruce.
Bruce: You’re welcome, Brooklyn. If you have any more questions, feel free to ask!