What Is an ATM?

Capital Markets / Investor Relations in Two Minutes or Less

What is an ATM?

Someone with no Capital Markets or Investor Relations background likely equates ATM with Automatic Teller Machine.

While not the correct answer, the answer is partially correct.

In Capital Markets, an ATM stands for at-the-market offering.

The ATM represents a unique capital raising structure that allows management to sell equity into the market at any time once the ATM is put into place.

Effectively, a public company management team turns their stock into an ATM machine, since the structure allows for quick and easy capital raising.

Key Thought: If management’s primary goal is to raise the stock price, and management is using an ATM, then someone needs to send the management team back to Triple A Albuquerque for more seasoning.

ATMs send the following irrefutable premise: Management will always sell stock into any stock price increase, and therefore, no ability for a sustained price move higher exists!

Any self-respecting long-term shareholder will eschew the idea of perpetual dilution, as it means the investor can always wait for a lower price!

Historically, ATMs were the purview of companies on their last breath seeking a last resort, unable to really find legitimate funding.

When I worked in Data Center REITs this capital raising structure became the rage of legitimate management teams everywhere.

The problem is if investors know you have one, they know you will use it any time the stock goes up.

Therefore, an ATM is most likely going to act as a governor on the underlying stock price.

The most egregious example I ever encountered was a preferred ATM.

Only an investment banker gets rich from a preferred ATM!!

When a company has significant liquidity needs an ATM is not going to solve the problem. Ultimately, the company will just end up back in the same place it started six months or a year later.

Even worse, the stock will likely languish or be lower, as well!