Equity is the book value of a company, shown in a balance sheet as net worth after liabilities have been subtracted from assets. It is expressed in units called shares or, collectively, stock. Shares of stock can be sold as a security—a financial instrument “secured” by the value of an operating company.

Under normal circumstances, the value of equity can be realized either as dividends the company pays its stockholders or as gains stockholders can make by selling shares. When a company is insolvent (bankrupt), equity represents claims on assets after all other claims have been paid.

There are two types of equity-financed M&A deals. A company can sell its equity and use the money to buy another company. Or it can simply offer its own shares to the buyer as a mode of payment for a company.

If a company wishes to remain private, it can do a private offering of equity or debt securities. A private offering is a sale of securities that does not involve registering with the Securities and Exchange Commission (SEC). It is made possible through an exemption from requirements in the Securities Act of 1933, still the dominant securities law (along with the Securities Exchange Act of 1934) after nearly a century.

Depending on the purpose and size of an offering, it may qualify for certain exemptions from the requirement to register. There are two main regulations for this, Regulation A and Regulation D (this lettering has no particular significance; there are no significant exemptions titled B or C):

• The Regulation A exemptions from registration requirements were expanded under the JOBS Act of 2012, earning the nickname Regulation A+. This exemption occurs in two tiers: offerings of up to $20 million in a one-year period and offerings of up to $75 million in a one-year period. This type of offering requires numerous conditions; it is considered more complicated than an offering under Regulation D, described as “limited” or “private.”
• Limited offerings. Rule 504 under Regulation D provides an exemption for offerings to any investors (including nonaccredited ones) as long as the amount to be raised does not exceed $10 million. But this exemption is off limits to blank check companies also known as special purpose acquisition companies. This means that companies may not use this exemption if they “have no specific business plan or have indicated their business plan is to engage in a merger or acquisition with an unidentified company or companies.”
• Private offerings. Rule 506b under Regulation D provides an exemption for offerings to accredited investors, with no limits to the amount of money to be raised. In such an offering, securities may not be sold to more than 35 nonaccredited investors. If all investors are accredited, the issuer can solicit broadly under Rule 506c.
• Crowdfunding. This alternative allows private companies to offer and sell up to $1 million in equity securities during a 12-month period to any investor in small amounts through a broker or funding portal, with accompanying disclosure requirements and investment limitations.

A public offering of securities, including any securities issued in connection with a merger or acquisition, must be registered with the SEC. Public offerings—both initial public offerings (IPOs) and secondary offerings after that—are managed by an underwriter, usually an investment banking firm (described later in this section).

Once the public owns stock in a company (and thus establishes a market value) it is generally easier for the issuer to use its shares as an acquisition currency. Alternatively, the company can have a secondary public offering or a debt offering and use that cash for acquisitions.

From 2000 to 2024, the number of IPOs has fluctuated from a low of 57 (during the financial crisis in 2008) to a high of 951 (during the SPAC boom in 2021). Most typically, however, there will be a few hundred per year.