FPO (follow-on public offering)

26th January 2021 0 By indiafreenotes

A follow-on public offering (FPO) is the issuance of shares to investors by a company listed on a stock exchange. A follow-on offering is an issuance of additional shares made by a company after an initial public offering (IPO). Follow-on offerings are also known as secondary offerings.

FPO is an abbreviation of a Follow-On Public Offer. The process of FPO starts after an IPO. FPO is a public issue of shares to investors at large by a publicly listed company. In FPO, the company goes for a further issue of shares to the general public with a view to diversifying its equity base. A prospectus is offered by the company.

There are two types of FPO:

  • Dilutive offering: In dilutive FPO, the company issues an additional number of shares in the market for the public to buy however the value of the company remains the same. This reduces the price of shares and automatically reduces the earnings per share also.
  • Non-Dilutive offering: Non-dilutive IPO takes place when the larger shareholders of the company like the board of directors or founders sell their privately held shares in the market. This technique does not increase the number of shares for the company, just the number of shares available for the public increases. Unlike dilutive FPO, since this method is not doing anything to the number of shares of the company, it does not do anything to the company’s EPS.

How follow-on Public offering is different from initial public offering.

  • IPO is made when company seeks to raise capital via public investment while FPO is subsequent public contribution.
  • First issue of shares by the company is made through IPO when company first becoming a publicly traded company on a national exchange while Follow on Public Offering is the public issue of shares for an already listed company.

IPO vs FPO

   

IPO

FPO

1. Meaning The first issue of shares by a company Issuance of shares by a company to raise additional capital after IPO
2. Price Fixed or variable price range Price is market-driven and dependent on number of shares increasing or decreasing
3. Share capital Increases because the company issues fresh capital to the public for listing. Number of shares increases in dilutive FPO and remains the same in non-dilutive FPO
4. Value Expensive Cheaper in most cases because the value of the company is getting further diluted.
5. Risk Riskier Comparatively less risky
6. Status of the company An unlisted company issues an IPO An already listed company issues an FPO