Follow-On Offerings and Block Trades Explained

Introduction

Most interview prep treats equity capital markets as a synonym for the IPO. That is a mistake. The IPO is a single day in a company's life; everything a public company does with its equity afterward, and everything its early backers do to sell down their stakes, runs through a different and busier corner of the ECM desk. Follow-on offerings, bought deals, accelerated bookbuilds, block trades, and rights issues are the products that dominate equity issuance in most years, and 2026 has been a record one. In the first half of 2026, U.S. equity issuance surged to roughly $307.7 billion across 585 priced deals, and follow-ons carried much of the load: 354 follow-on offerings priced in six months, alongside 192 IPOs, per an S&P Global review of H1 2026 issuance.

For an ECM analyst, this is where the real desk work lives. Understanding how each product prices, who bears the risk, and why a company would ever sell stock at a discount separates candidates who have read a textbook from candidates who understand how capital markets actually function. This post walks through every major post-IPO equity product, the risk each one puts on the bank's balance sheet, and the interview questions that test whether you get it.

Once a company lists, its shares trade continuously and the market sets a price every second. That changes the entire job. An IPO prices a company that has never traded; a follow-on prices against a live, observable market price, which makes everything faster and shifts the whole game toward execution speed and discount management. The way ECM and DCM split the world, this is squarely ECM's domain, and it is where junior bankers spend most of their live-deal time.

Primary vs Secondary Shares

The single most important distinction in any follow-on is who receives the money. In a primary offering, the company issues brand-new shares and keeps the proceeds to fund growth, pay down debt, or build capacity. This dilutes existing shareholders because the share count rises. In a secondary offering, an existing holder (a founder, a private equity sponsor, an early venture investor) sells shares it already owns, and that seller pockets the cash. The company's share count does not change and the company receives nothing.

Why Companies and Shareholders Return to Market

Companies come back for capital: funding an acquisition, deleveraging after a debt-heavy year, or building the enormous capacity that the current cycle demands. Alphabet's mid-2026 equity program is the extreme example: announced at $80 billion in June 2026 and completed at roughly $85 billion including an at-the-market tranche and a $10 billion private placement, it became the largest equity capital raise in market history, funding AI data-center buildout, per CNBC's coverage of the raise. Selling shareholders have a different motive: sponsors and insiders eventually need to turn paper stakes into cash, and after the IPO lock-up expires they use follow-ons and block trades to sell down in an orderly way. This is one of the main exit routes private equity relies on once a portfolio company is public.

The first fork every ECM deal faces is whether to market the offering to investors over a couple of days or sell the whole thing to a bank in one shot. The choice trades price for certainty, and it is the cleanest way to understand how banks take equity risk.

How a Marketed Follow-On Works

In a marketed (or "fully marketed") follow-on, the bank acts as an agent. It announces the deal, spends one to three days building a book of institutional orders, sometimes runs a short roadshow, and then prices the offering based on the demand it has gathered. Because the bank is only distributing shares rather than buying them, its risk is low: if demand is weak, the deal can be repriced or pulled before any capital is committed. The trade-off is time. Over one to three days the stock can drift, hedge funds can short it, and the overhang of a known deal often pressures the price. Marketed follow-ons suit larger raises where the company needs deep, real demand and can tolerate a slower, more visible process.

What a Bought Deal Is

A bought deal flips the risk. Here the bank commits to buy the entire offering from the company (or the selling shareholder) at a fixed price, usually agreed overnight or within hours, and then resells the shares to investors on its own account. The issuer gets certainty: it knows exactly how much cash it will receive the moment it signs, regardless of what happens next. The bank takes on the job of finding buyers, and it eats any loss if it cannot resell at or above the price it paid.

Bought Deal

An equity offering in which an investment bank (or a syndicate) buys the entire block of shares from the issuer or selling shareholder at a fixed, agreed price and then resells them to investors, taking on the full risk of placing the stock. The issuer receives guaranteed proceeds immediately, while the bank profits only if it can resell above its purchase price. Bought deals are fast, competitive, and priced at a discount that compensates the bank for taking principal risk.

The risk the bank absorbs here is called backstop risk or underwriting risk. Between buying the shares and selling them, the bank is long the stock. If the market drops or the shares are hard to place, the bank sells below cost and books a loss. This is why bought deals are priced at a wider discount than marketed deals: the discount is the bank's cushion against the position moving against it.

Why Would a Company Do a Bought Deal at a Discount?

This is a favorite interview question, and the answer is about certainty and control. A company or sponsor accepts a wider discount because it is buying three things: guaranteed proceeds, speed, and confidentiality. There is no multi-day window for the market to digest the news and drive the price down, no roadshow, and no risk that the deal collapses halfway through. For a sponsor trying to sell a large stake without spooking the market, or a company that needs the cash locked in before an acquisition signing, paying an extra two or three points of discount to remove all execution risk is a rational trade. The discount is not a mistake; it is the price of certainty.

Follow-on and block-trade mechanics come up constantly in ECM and coverage interviews: Work through capital markets, valuation, and deal-structure questions with worked answers, start practicing interview questions for free and find your gaps before an interviewer does.

When speed matters more than anything, ECM turns to overnight products. An accelerated bookbuild and a block trade are close cousins: both compress the entire distribution process into a few hours, usually after the market closes, so the seller is out of the position before trading opens the next day.

How an Accelerated Bookbuild Runs Overnight

An accelerated bookbuild, or ABB, is a rapid placement in which the bank markets a block of shares to institutional investors over a compressed window, typically overnight. The defining features are speed, limited pre-marketing, and a discount to the last close large enough to clear the size quickly. Winning bids often clear at around a 5% discount to the closing price. The sequence is tight and unforgiving.

The entire process is designed so the seller is fully out of the position before the wider market has a chance to react, which is exactly why the discount exists: investors are paid to absorb a large block at short notice.

Accelerated Bookbuild (ABB)

A method of selling a large block of already-listed shares to institutional investors in a single, compressed session, usually overnight. The bank collects bids over a few hours and prices the block at a discount to the most recent closing price, giving the seller fast execution and near-certain completion in exchange for accepting that discount and less control over who ends up owning the shares.

An ABB can be run on a "best efforts" (agency) basis, where the bank markets the shares without guaranteeing the price, or on a "risk" basis, where the bank guarantees a price and effectively turns the ABB into a bought deal. Which one applies changes who is exposed if demand disappoints.

Block Trades and How Banks Take Risk

A block trade is the sale of a large, single lot of shares, almost always by one big holder such as a private equity sponsor or a corporate cross-holding. In the classic risk version, the bank buys the entire block off the seller at an agreed discount, then works to resell it to institutions, either instantly or via an overnight ABB. The bank's compensation is the spread between what it paid and what it resells for, and it carries the position (and the downside) until the shares are placed. The largest such trade on record was EQT's full exit from Galderma in March 2026, when the sponsor placed roughly 34 million shares for about CHF 4.9 billion through an accelerated bookbuild, the largest sponsor-backed block trade ever completed.

Block Trade

A privately negotiated sale of a large block of publicly listed shares, typically by a single major shareholder, executed outside the normal continuous market to avoid moving the price. The selling bank usually buys the block at a discount to the current market price and takes on the risk of reselling it to institutional investors, earning the spread between its purchase and resale prices.

The Wall-Cross Process

Before launching an overnight deal, banks often need to gauge demand quietly without tipping off the wider market. They do this by "wall-crossing" a small group of trusted institutional investors: bringing them over the information barrier, sharing the confidential deal details, and asking whether they would participate and at what price. Investors who are wall-crossed become insiders on that stock and are restricted from trading it until the deal is announced or abandoned. This lets the desk anchor the book with committed demand before opening the deal to the full account base, reducing the risk that the placement fails. Managing this process, and the compliance around it, is a core piece of ECM desk work.

Every one of these products ultimately comes down to one number: the discount at which the shares are sold. Pricing that discount correctly is the entire art of the ECM desk.

What Drives the Discount

The discount compensates buyers for taking on a large block of stock quickly and compensates the bank for any risk it holds. Wider discounts show up when the stock is volatile, the offering is large relative to average daily trading volume, the sector is out of favor, or the deal is a bought/risk trade rather than an agency trade. Tighter discounts appear when the stock is liquid, demand is deep, and the seller is patient enough to market the deal. Analysts spend real time benchmarking a proposed discount against comparable recent deals, because a discount that is too tight risks a failed placement and one that is too wide leaves money on the table for the seller.

File-to-Offer Discount

The percentage gap between a stock's market price when an offering is launched (filed or announced) and the price at which the shares are ultimately sold to investors. A larger file-to-offer discount means investors paid less relative to where the stock was trading, which reflects weaker demand, higher risk, or a larger deal size. It is the headline metric ECM desks use to judge how well a follow-on or block was priced.

How Banks Compete for the Trade

On bought deals and block trades, banks compete in a fast auction. The seller solicits bids from several banks, each of which proposes a price (equivalently, a discount) at which it will buy the whole block. The bank offering the highest price, the smallest discount, usually wins, but that winner then owns the risk of reselling at that aggressive level.

This dynamic explains why syndicate desks obsess over reading real-time demand and why the relationship between ECM and how investment banks make money is more nuanced than a simple fee percentage. On agency deals the bank earns a clean fee; on principal deals it is trading its own book.

Rights issues are the one major follow-on product built to protect existing shareholders from dilution, and they are far more common in Europe and Asia than in the U.S. They deserve their own treatment because the mechanics and the discounts look nothing like a bought deal.

How a Rights Issue Works

In a rights issue, a company offers new shares directly to its current shareholders in proportion to their existing holdings, at a price set well below the market price. A shareholder can exercise the rights (buy the new shares at the discounted price), sell the rights to someone else in the market, or let them lapse. Because the offer goes to existing owners first, a shareholder who fully participates is not diluted. The deep discount, often 20% to 40% and deeper still in rescue raises, exists to ensure the issue is taken up even if the stock drifts during the multi-week subscription period, and it is offset by the fact that every holder gets to buy at that same low price.

Rights Issue

A capital raise in which a company offers new shares to its existing shareholders, pro rata to their current holdings, usually at a significant discount to the market price. Shareholders can buy the new shares, sell their rights to others, or do nothing and be diluted. Rights issues let a company raise equity while giving current owners the first opportunity to maintain their percentage ownership.

When Rights Issues Are Used

Rights issues tend to appear when a company needs a large amount of capital relative to its market value, when regulation or listing rules favor pre-emption rights (the legal right of existing holders to buy first), or when a company is repairing its balance sheet and wants to signal that current owners are backing the recovery. They are slower and more administratively heavy than an overnight placement, and banks usually underwrite them on a standby basis, agreeing to buy any shares that existing holders decline. That standby underwriting is a form of backstop risk, though the deep discount makes a failed take-up far less likely.

Get the complete guide: Download our comprehensive 160-page PDF, access the IB Interview Guide covering the technical questions and deal frameworks that come up across capital markets interviews.

A huge share of post-IPO ECM volume is not companies raising money at all. It is early investors selling down, and the calendar for those sales is set by the IPO lock-up. Understanding this cycle connects the IPO process to the follow-on and block-trade work that follows it for years.

Lock-Up Expiry and Releases

When a company goes public, insiders and pre-IPO investors typically agree to a lock-up, usually 90 to 180 days, during which they cannot sell their shares. The point is to prevent a flood of stock from hitting the market right after listing. When the lock-up expires, those holders are free to sell, and the overhang of newly sellable shares can pressure the price. Banks manage this carefully, sometimes negotiating early or staggered releases so that a sponsor can begin selling in an orderly sequence of block trades and ABBs rather than dumping everything at once. This is a direct extension of the price-stabilization logic behind the greenshoe option used at the IPO itself.

Cleanup Trades

A cleanup trade is the final block a sponsor sells to exit a position entirely, taking its stake to zero. These are often the largest and most watched follow-on transactions, because they remove the overhang completely and signal that the sponsor is fully out. EQT's Galderma exit was a cleanup trade taken to its limit, a full disposal executed in a single accelerated bookbuild. For candidates, cleanup trades are a useful lens on why the 2026 IPO boom matters beyond listing day: every sponsor-backed IPO creates years of future follow-on and block-trade activity as the sponsor sells down, which is exactly why a strong IPO calendar keeps ECM desks busy long after the first trade prints.

All of this is not abstract. It is the substance of what a junior ECM banker does and what interviewers probe to see whether you understand the desk.

The Desk Work

Day to day, ECM analysts benchmark discounts against recent comparable deals, build the pricing analyses that support a bought-deal bid, track lock-up expiry calendars for the bank's public clients, model the dilution impact of a primary raise, and prepare the materials that a sponsor uses to decide between a marketed follow-on and an overnight block. During a live overnight deal, the work compresses into a few intense hours of order-book tracking and allocation. The skill set blends market awareness with execution discipline, which is why capital markets attracts people who like the pulse of live markets more than the multi-month grind of an M&A process.

Common Interview Questions

Interviewers rarely ask you to recite definitions. They ask you to reason. Expect questions that force you to weigh the trade-offs directly.

The IPO gets the headlines, but the equity capital markets desk earns most of its keep after the listing, recycling and raising equity through follow-ons, bought deals, accelerated bookbuilds, block trades, and rights issues. Each product is a different point on the same spectrum, trading execution speed against the risk the bank is willing to warehouse. A marketed follow-on is patient and low-risk; a bought deal or block trade is fast and puts the bank's own capital on the line; a rights issue protects existing owners at the cost of time and a deep discount.

For a candidate, the payoff of understanding this is twofold. First, it shows an interviewer that you grasp how public companies and their backers actually behave, not just how a company gets listed once. Second, it gives you a genuine feel for what an ECM analyst does all day, which is the honest test of whether the group is right for you. Learn the products, but more importantly learn the trade-offs, because the trade-offs are what interviewers are really testing, and they are what make the desk interesting in the first place.