FPO (Follow-on Public Offer) is a process by which a public company, which is already listed on a stock exchange, issues new shares to the investors or the existing shareholders. FPO is used by companies with a view of diversifying their equity base.
A company uses FPO after it has gone through the process of an IPO(Initial Public Offering) and decides to make more of its shares available to the public or to raise capital to expand or pay off debt.
An FPO is a stock issue of additional shares made by a company that is already publicly listed and has gone through the IPO process. FPOs are popular methods for companies to raise additional equity capital in capital markets through an issue of stock.
A company uses FPO after it has gone through the process of an IPO(Initial Public Offering) and decides to make more of its shares available to the public or to raise capital to expand or pay off debt.
An FPO is a stock issue of additional shares made by a company that is already publicly listed and has gone through the IPO process. FPOs are popular methods for companies to raise additional equity capital in capital markets through an issue of stock.
Public companies can also take advantage of an FPO through an offer document(prospectus). FPOs should not be confused with IPOs, Initial Public Offering of equity to the public. FPOs are additional issues made after a company is listed on an exchange. IPOs are the very first issue made by the company to the general public.
Types of FPOs
There are mainly two types of follow-on public offers. The first is DILUTIVE to investors, as the company’s Board of Directors agrees to increase the number of shares available. This kind of follow-on public offering seeks to raise money to get additional capital or reduce debt or expand the business. Results in an increase in the number of shares owned by stockholders, investors, etc..
The other type of follow-on public offer is NON- DILUTIVE. This is useful when directors or valuable shareholders sell-off privately held shares. With a non-dilutive offer, all shares sold are already in existence. Commonly referred to as a secondary market offering, there is no benefit to the company or current shareholders.
Problems that can be faced with Follow-On Offerings
Follow-on offerings are common in the investment world. They provide an easy way for companies to raise equity that can be used for common purposes. Companies announcing secondary offerings may see their share price fall as a result. Existing shareholders often react negatively to secondary offerings because they dilute existing shares and many are introduced below market prices.
In 2015, many companies had follow-on offerings after going public less than a year prior. Shake Shack was one company that saw shares fall after news of a secondary offering. Shares fell 16% on news of a substantial secondary offering that came in below the existing share price.
Key Differences Between IPO and FPO
Key Differences Between IPO and FPO
- Initial Public Offering is a process through which privately-owned companies can go public by offering their shares for sale to the general public. where else Follow-On Public Offering refers to a process in which publicly owned companies make a further issue of shares to the public through the prospectus.
- IPO is the very first issue of the shares by the private company. On the other hand, FPO is the second or third public issue of the shares of the company.
- IPO is the offering of shares by an unlisted company. However, when a listed company makes the offering it is known as Follow-on Public Offering.
- IPO is made with the aim of raising capital through public investment. Unlike FPO, made with an objective of following public investment.
