The bubble in stock prices that occurred in the late 1990s led to a hot issue market in which the market was attracted to deals that offered the promise of spectacular returns. This "irrational exuberance", a phrase coined by Alan Greenspan, caused some companies to choose the private placement market to raise capital rather than attempting sales in follow on public offerings. The private placement market offers potential advantages in structuring of new deals to allow follow on financing or offerings that contain embedded options that may be more difficult to market in the public market. An article written in January 2000 entitled, "Out of the Public Eye," describes developments that took place in this market.
After reading this article, answer the following questions:
1. What factors could lead an institutional investor to prefer acquiring an equity stake in a public company through a private sale rather than purchasing such stock in the public market?
2. Many of the placements are done in the form of convertible preferred stock. What are some of the potential advantages offered by convertible preferred offerings?