Key Takeaways
- Additional shares issued after IPO to raise capital.
- Dilutive FPO creates new shares; non-dilutive does not.
- Pricing often at discount to attract investors.
What is Follow On Public Offer (FPO)?
A Follow On Public Offer (FPO) is a public issuance of additional shares by a company that is already listed on a stock exchange after completing its Initial Public Offering (IPO). This mechanism allows the company to raise further capital or enables existing shareholders to sell their holdings to the public.
Unlike IPOs, FPOs usually involve fewer regulatory hurdles since the company is already publicly traded, making them a popular option for raising funds or adjusting ownership structure.
Key Characteristics
FPOs have distinct features that differentiate them from other public offerings:
- Types: Dilutive FPOs increase the number of shares outstanding, potentially affecting earnings per share, while non-dilutive FPOs involve existing shares sold by current shareholders.
- Pricing: Share prices are typically set at or below the fair market value to attract investors during the offering.
- Regulatory Requirements: Since the company is already listed, the filing and disclosure process is streamlined compared to an IPO.
- Investor Access: Shares must be offered to the general public, ensuring broad investor participation beyond existing shareholders.
- Impact on Ownership: Dilutive offerings may dilute ownership percentages, while non-dilutive offerings do not affect the total shares outstanding.
How It Works
To initiate an FPO, the company’s board approves the issuance of new shares or the sale of existing shares by insiders. The pricing is determined through a book-building process or fixed price, often at a discount to market values to ensure investor interest.
After regulatory approval and filing of the prospectus, the company markets the offering through roadshows or investor presentations. Investors then subscribe to the shares, which are allotted based on demand before being listed and traded on the exchange just like existing shares.
Examples and Use Cases
FPOs serve various strategic and financial purposes across industries:
- Airlines: Companies like Delta and American Airlines have used FPOs to raise funds for fleet expansion or debt reduction.
- Technology and Growth: Firms targeting capital for scaling operations often complement IPO proceeds with FPOs to maintain momentum, similar to concepts discussed in best growth stocks.
- Large-Cap Companies: Established companies may issue FPOs to optimize their large-cap stock structure or to diversify ownership.
Important Considerations
Before participating in an FPO, consider the potential dilution effect on your shareholding, especially in dilutive offerings that increase total shares and may impact earnings per share. Pricing discounts, while attractive, can sometimes indicate underlying valuation concerns.
Additionally, understanding the company’s purpose for raising funds—whether for expansion, debt repayment, or shareholder liquidity—can help you assess the long-term value of your investment. If you are new to equity investments, exploring ETFs for beginners might provide a diversified entry point.
Final Words
Follow-on Public Offers provide companies with a flexible way to raise capital or enable shareholders to liquidate stakes, but they can impact share value through dilution. Carefully evaluate the type of FPO and its implications before deciding to invest or participate. Consider consulting a financial advisor to assess how an FPO aligns with your portfolio goals.
Frequently Asked Questions
An FPO is when a public company issues additional shares after its Initial Public Offering (IPO) to raise more capital or allow existing shareholders to sell shares. It helps companies access funds or change ownership while being already listed on a stock exchange.
Unlike an IPO, an FPO involves a company that is already publicly listed, so it faces fewer regulatory hurdles and uses market-driven pricing. FPOs can be dilutive or non-dilutive, whereas IPOs are the company’s first public share sale.
There are two main types: Dilutive FPOs, where new shares are issued raising fresh capital but diluting earnings per share, and Non-Dilutive FPOs, where existing shareholders sell their shares without creating new ones, so earnings per share remain unchanged.
Companies issue FPOs to raise funds for growth, repay debt, finance acquisitions, or improve financial ratios. Non-dilutive FPOs also help existing shareholders diversify ownership or gain liquidity.
The process starts with board approval, followed by setting the share price through book-building or fixed pricing. After regulatory filings and marketing efforts, shares are allotted to investors and listed on the stock exchange for trading.
Yes, in a dilutive FPO, issuing new shares increases the total share count, which can dilute existing shareholders’ ownership and earnings per share. In non-dilutive FPOs, ownership patterns may change as existing shareholders sell their shares.
An ATM offering is a special type of FPO where companies can sell shares incrementally at current market prices without fixed timelines, providing flexibility in raising capital based on market conditions.
