Just as with the firm commitment offering, the best efforts offering is an arrangement where an agent agrees to take on the task of selling securities on behalf of the owner. However, there is one key difference. With a best efforts offering, the agent does not guarantee that the sale will take place within a given time frame or that a particular amount of revenue will be realized from the venture. At the same time, the agent does pledge to make a reasonable effort to sell the offering, and will keep the best interests of the client in mind.
Underwriting agents who commit to best efforts offering services often include investment banks. Working with the issuing company, the investment bank will analyze the offering, looking at a number of factors that have some relation to the security. These factors may include reviews of past performance, current standing within the market, and the projected performance based on overall market conditions. This allows the agent to come up with specific strategies for publicizing the availability of the offering, setting minimum prices that are often referred to as the best ask, and negotiating with interested investors to get the best price possible.
There are some advantages for both the seller and the agent working with a best efforts offering strategy. For the agent, there is the opportunity to realize a nice commission from being able to sell the offering at the best price possible. From this perspective, the agent has a great deal of control over the process of the sale. The agent is free to reject offers that may meet a minimum price, but fall short of what the agent honestly believes is a reasonable price for the asset. Going for the best price is not only financially rewarding, but an agent that develops a reputation for getting the best sale price for clients is bound to have plenty of work.
For the seller, working with a competent agent with experience with the best efforts offering approach can also be a positive experience. First, there is the knowledge that the agent is going to go for the best price possible. Second, the seller does not have to spend much in the way of promoting the sale at all; the agent takes care of those functions as well. Third, the seller can rest assured the agent will not accept a low price simply to complete the deal. In fact, the agent may forgo the reward of a quick commission to advise the seller to hold on to the offering for a little while longer. This often happens when the agent has reason to believe that the offering will command a better price in six months or a year.
