Tempted by a share offer? Here's what you need to know

Investors are occasionally given the chance of buying shares in a company when it launches a ‘retail share offering’, rather than buying them on the stock market.

Here we explain how share offers work and how you can get involved if you decide one is right for you.

What is a share offer?

Share offers, sometimes called share issues or further issues, are the sale of a large quantity of shares in a company which already has shares trading on the stock market.

These shares might be newly created shares being sold by the business itself as a way to raise money, or the shares could be sold by a major shareholder who no longer wants some or all of the shares they hold.

A ‘retail’ share offer means the public can participate, rather than a general offering where the seller arranges to sell the shares to big institutional investors like investment companies and pension schemes.

What’s the difference between a share offer and an IPO?

IPOs – Initial Public Offerings - generally mark the first sale of shares for public ownership in a company which has previously been privately or state-owned. A ‘share offer’ is usually for shares in a company that has previously gone through an IPO or has a long history of its shares being publicly traded.

How does a share offer work?

A seller will normally announce their intention to launch a share offering a short while before it happens to drum up investor interest.

The seller will set the terms of the offer, including who is eligible to buy the shares, minimum or maximum limits on purchases, and the timeline for applications.

They will also determine the price of the shares in the offer. Some offers come with a discount to the current market price giving investors a reason to buy through the offer rather than existing shares already on the stock market. This process is known as a ‘discounted retail share offer’.

Share offers and IPOs can happen very quickly and with little notice.

As an example, the Royal Mail IPO took place over less than a month in 2013. Plans for the sale were announced in mid-September, the public were able to apply for shares from 27 September, and conditional trading on the shares began on 11 October.

If an offer is over-subscribed investors may not receive all the shares they applied for. The seller might arrange a ballot to determine who is successful, they may reduce all applications equally, or there may be a preference given to smaller shareholders. Just like with deciding the price the shares are issued at – the exact logic used to decide who gets how many shares is determined by the seller of the share offer and the firm handling the offer on their behalf.

How can I tell if the offer is worth investing in?

When you buy shares you’re buying a stake in a business. Successful investing starts with understanding the business you’re buying into and the specific risks associated with that business. Investors should look out for the latest set of annual results to learn more about a company’s current position and outlook.

Remember, buying shares isn’t right for everyone.

When you buy shares in an individual company the value of your investment is tied to a single business. Unlike investing in a fund or Exchange Traded Fund (ETF), where your money is spread across a number of companies.

As shares themselves are not a diversified investment you should consider purchasing them as part of a diversified portfolio.

All investments may rise and fall in value and any income they produce is not guaranteed, so you could make a loss. If you’re not sure of an investment's suitability for your circumstances, you can speak to a financial adviser.

How do I apply?

Usually, a seller will use trusted intermediaries to handle the administration of a share offer along with allocating the shares to investors’ accounts. Check with your stockbroker if you can participate in a share offer through their service.

Can I sell the shares immediately?

Yes, but there might be an incentive included as part of the offer for you to keep hold of them for a certain period of time.

Smart Investor doesn’t charge you to participate in an IPO or share offer, but you will pay the usual £6 per trade share dealing charge when you come to sell any of your holding. You will also pay our simple annual customer account fee of 0.25% per year on investments up to £200,000 and 0.05% on investments above £200,000 while you hold shares through our service.

Stamp duty isn’t normally charged when you acquire shares through a share offer.

Barclays expertise and share offers

Barclays has been supporting customers in the UK for over 330 years and we’re committed to making sure investors are well informed and supported.

We have expert knowledge and experience of share offers, as Smart Investor has participated as an intermediary in over 100 retail new offers including Direct Line, Royal Mail and Pets at Home.