It helps entities diversify equity and ensure raising additional capital for their business. Like an IPO, the entities must fill in the related documents for registration with the United States Securities and Exchange Commission (SEC) if they want to execute the FPOs. An initial public offering (IPO) is when a private company goes public, listing its shares on an exchange for the first time for the public to purchase. A follow-on offering is when an already existing public company (one that has completed an IPO) sells more shares to the public to raise additional capital.
- An FPO is one of the best ways for companies to ensure their operations run smoothly.
- This involves presentations to institutional investors, analysts, and brokers to generate interest in the FPO.
- Our work has been directly cited by organizations including Entrepreneur, Business Insider, Investopedia, Forbes, CNBC, and many others.
- Companies often issue their FPO shares at a discounted rate to entice buyers.
- However, as FPOs may come with certain risks, investors must conduct their research and analysis before deciding whether to participate in an FPO.
Types of FPO
But in some situations, a company might find it needs to raise additional capital down the road. The difference between Follow-on Public Offering (FPO) and an Offer for Sale (OFS) lies in the source of the shares being offered to the public. In an FPO, the company issues and offers additional shares directly to the public, while in an OFS, existing shareholders sell their shares to the public. This action is typically taken to raise more capital, decrease debt, or fund new projects.
However, they also carry risks, such as diluting existing shareholders’ ownership, over-saturating the market with shares, and the risk of underpricing the offering. The other name for Follow-on Public Offering (FPO) is Secondary Public Offering (SPO). Both terms refer to the process of a company offering additional shares to the public after its initial public offering. FPOs or SPOs are used by companies to raise additional capital from the market. Follow-on public offering (FPO) is a scheme under which an organization that is already listed on the stock exchange issues extra shares after the initial public offering (IPO). Being the follow-up issue of the latter, it has been named as a follow-on public offer.
Impact of Global Economic Trends on FPOs
Future trends in follow-on offerings include the increasing role of technology and digital platforms, which are streamlining the process and reaching potential investors more effectively. Globalization is expanding what is follow on public offer the investor pool by allowing companies to reach investors worldwide. Additionally, the COVID-19 pandemic has increased market volatility, which impacts the timing and success of follow-on offerings. An at-the-market offering is a strategy where the company sells shares directly into the secondary trading market at prevailing market prices. This approach allows companies to avoid the cost and time involved in standard follow-on offerings.
A follow-on offering can lead to a drop in the stock’s price due to the dilution of existing shares. However, if the market perceives the use of proceeds positively, it may boost the stock price. The company and underwriters conduct a roadshow to market the offering to potential investors. Following this, the underwriters recommend a price for the offering based on investor demand and market conditions. However, as FPOs may come with certain risks, investors must conduct their research and analysis before deciding whether to participate in an FPO. FPOs generally carry less risk than IPOs because the price set for the shares is usually lower than the market price, which attracts shareholders to invest.
Kindly note that this page of blog/articles does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. This article is prepared for assistance only and is not intended to be and must not alone be taken as the basis of an investment decision. Please note that past performance of financial products and instruments does not necessarily indicate the prospects and performance thereof. Whereas, when the company releases the shares previously owned by a promoter group or privately held to the general public, shares may not increase.
What does FPO stand for?
It not only turns advantageous for companies, but also for investors who get the shares at a less expensive rate and get a higher stake in the company, in return. After the IPO, the company had just 100 shares, meaning each share was worth 1% ownership in the company. Now that it’s issued another 100 shares, each share represents 0.5% ownership in the company.
In a dilutive FPO, a company issues new shares, which are added to the existing number of shares in circulation. This increases the total number of outstanding shares, potentially reducing the earnings per share and causing dilution for existing shareholders. IPOs can raise substantial capital and create publicity, but they are costly and time-consuming. Follow-on offerings can raise additional capital more quickly and with less publicity, but they risk diluting existing shareholders.
Follow-on offerings can significantly impact market dynamics, influencing stock prices, market perception, and industry trends. Before participating in an FPO, investors should check the company’s financial health, growth prospects, pricing, and the purpose of raising funds to ensure it aligns with their investment goals. However, increasing the number of shares does slightly dilute each existing share. During a non-diluted follow-on offering, shares coming into the market are already existing and the EPS remains unchanged.
This document includes financial statements, information about the company’s business, and details about how the raised capital will be used. Non-Dilutive FPO is a type of FPO that does not decrease the valuation and the ownership percentage of the current shareholders. The process witnesses the current shareholders selling their stakes for personal gains, resulting in no change in the share float. When more investors invest in a company’s shares, it automatically attracts the attention of other investors who are keen to make investments. The increased investment opportunities with a company reflect its potential growth prospects.
Filing Registration Statements
The shares had a face value of Rs 2 with a price band of Rs 615 to Rs 650 per share. The lot size for the FPO issue was 21 shares, with the issue size amounting to Rs 4,300 crores. In early 2022, AFC Gamma, a commercial real estate company that makes loans to companies in the cannabis industry, announced that it would be conducting a follow-on offering. The company would look to offer 3 million shares of its common stock at a price of $20.50 per share. The underwriters of the offering have a 30-day period in which they can opt to buy an additional 450,000 shares.
IPOs and FPOs are used by companies or corporations that want to raise funds from the public. Diluted follow-on offerings happen when a company issues additional shares to raise funding and offer those shares to the public market. As the number of shares increases, the earnings per share (EPS) decreases.
It must be sounding similar to an IPO, which is Initial Public Offering, however, they are different. While these offerings can increase market exposure and raise significant capital, potential risks include shareholder dilution, share oversaturation, and underpricing. Globalization and the growth of emerging markets are providing companies with new opportunities for follow-on offerings. Companies can now access investors worldwide, increasing their potential capital pool.
This means that it is the directors or the bigger shareholders who sell their shares and offer them to the public. The company board issues a new set of shares to be offered to the public. Such an FPO is undertaken by the company to fund expansion activities or pay for debts. A recent example of dilutive FPOs in the case of Indian stock markets is ITI Ltd. Follow on public offer or FPO is a way by which companies already listed on the stock exchange issue shares to the public. It is different from an IPO which is when a company offers its shares to the public for the first time.