1. Long-term debt
Private placements offer longer maturities at a fixed-interest rate. This is ideal for when a business is presented with a growth opportunity where they wouldn’t see the return on their investment right away; the business would have more time to pay back the private placement, while having certainty of financing cost over the life of that investment.
Also, private placements are typically ‘buy-and-hold’, so the company would benefit from having a long-term relationship with the same investor throughout the life of the financing.
2. Complement to Existing Financing
Private placements also help diversify a company’s sources of capital and capital structure. The terms for private placements are customisable as well, therefore they can complement existing bank debt versus compete with it, and can enable companies to better manage their debt obligations. Diversification of funding sources is particularly important during market cycles when bank liquidity may be tight.
3. Privacy and Control
Private placement transactions are negotiated confidentially. Public disclosure requirements are limited as well, compared to those found in the public market. Because of this, companies would not be beholden to public shareholders.