Bought Out Deal

A Bought Deal or Bought Out Deal is when a company’s entire public offer of stocks is confirmed to be bought by the investment bank. When an entire issue or new share offer is purchased by a single Investment Bank or Underwriter, such an offering is called Bought Deal or Bought Out Deal. The investment bank or underwriter buys the entire offering to sell it later to other buyers at profit.

Features of a Bought Deal

Key features of a Bought Deal:
1. Generally, a bought deal is offered to the investment bank or investor’s syndicate at a discounted price.
2. Underwriter has an opportunity to sell it at a higher value later.
3. It is profitable for both as, for the issuer, there is no risk of under subscription and for the underwriter, the acquisition price is at a discount.

Disadvantages of Bought Deal:

Some limitations of a Bought Deal are:
1. Investment banks will have to hold the securities in order to make profits if not sold immediately to prospective buyers.
2. As it is a guaranteed deal, the issuer has no motivation for marketing or publicizing the offering.