Follow-on Public Offer FPO Types, Benefits and Key Insights

Shareholders often react negatively to secondary offerings because they dilute existing shares, and many are introduced below market prices. Follow-on Public Offers (FPOs) offer a convenient way for listed companies to raise capital and enhance their financial position. Through the issuance of additional shares, these companies can fund their expansion plans, repay debts, acquire assets, or invest in research and development.

Dutch auction

Similar to an IPO, companies that want to execute a follow-on public offer must fill out Securities and Exchange Commission (SEC) documents. Prior to 2009, the United States was the leading issuer of IPOs in terms of total value. Learn about the follow-on public offer (FPO) in finance and understand how it works to raise capital for companies. Once your KYC is approved, you can access a range of investment portfolios designed to meet various financial goals and risk levels.

Example: Follow-On Offerings(FPO)

From the viewpoint of the investor, the Dutch auction allows everyone equal access. Moreover, some forms of the Dutch auction allow the underwriter to be more active in coordinating bids and even communicating general auction trends to some bidders during the bidding period. This auction method ranks bids from highest to lowest, then accepts the highest bids that allow all shares to be sold, with all winning bidders paying the same price. It is similar to the model used to auction Treasury bills, notes, and bonds since the 1990s. Both discriminatory and uniform price or “Dutch” auctions have been used for IPOs in many countries, although only uniform price auctions have been used so far in the US.

ATM offerings tend to be smaller than traditional follow-on offerings, so if a business is looking to raise a large amount of capital, this may not be the best method. It’s important to note that existing shareholders are also given the option to participate in the FPO, allowing them to increase their stake in the company. After setting up your investment, you can sit back and watch your money grow. The Stack Wealth app will provide regular updates and reports on your portfolio’s performance. You can also make adjustments to your investments or withdraw funds as needed. This wealth blogs cover financial planning, investment techniques, and wealth management strategies.

How a Follow-on Offering (FPO) Works

Follow-on Public Offer (FPO) is a type of public offering when a company that is already listed on the stock exchange makes a decision to sell more shares to the public. Essentially, it’s a manner for companies that have already raised price ranges through IPOs to raise additional capital. FPOs are best for companies with strong statistics and buyers who want to buy more shares. It is critical to observe, however, that issuing more shares can dilute the possession and profits of current shareholders, so traders must weigh the pros and cons before leaping in. One example of a type of follow-on offering is an at-the-market offering (ATM offering), which is sometimes called a controlled equity distribution. In an ATM offering, exchange-listed companies incrementally sell newly issued shares into the secondary trading market through a designated broker-dealer at prevailing market prices.

Why Do Companies Issue Follow On Public Offering?

• Afterwards, the company lists on the stock exchanges as a publicly listed company.
• There are two types of follow-on offerings – diluted and non-diluted shares.
• A seasoned investment professional with over 17 years of experience in AIF and PMS operations, investments, and research analysis.
• By the end, you’ll understand exactly what an FPO entails and when companies opt to go down the FPO route.

Non-diluted follow-on offerings are also called secondary market offerings. The first type of FPO is dilutive to investors, as the company’s board of directors agrees to increase the share float level or the number of shares available. This kind of follow-on public offering seeks to raise money to reduce debt or expand the business, increasing the number of shares outstanding and decreasing the earnings per share (EPS) decrease. A Follow-On Public Offer or FPO is a secondary offering when a company that has already gone public via an IPO (and is listed on an exchange), decides to offer additional shares to the public.

This method provides capital for various corporate purposes through the issuance of equity (see stock dilution) without what is follow on public offer incurring any debt. This ability to quickly raise potentially large amounts of capital from the marketplace is a key reason many companies seek to go public. Stack Wealth blogs offer expert insights and analysis on investing, wealth creation, personal finance, financial market updates, and market analysis.

Once the shares are sold, the proceeds go back to the original shareholders of the stock. ATM offerings are sometimes referred to as controlled equity distributions because of their ability to sell shares into the secondary trading market at the current prevailing price. In a weakened FPO, the company creates new shares and sells them to investors. This increases the total number of shares in the market, which helps the company generate capital.

Our blogs guide you through SIPs in detail and help you select the one that matches your financial objectives, risk tolerance, and investment period. The securities quoted in the article are exemplary and are not recommendatory. The investors should make such investigations as it deems necessary to arrive at an independent evaluation of use of the trading platforms mentioned herein. The trading avenues discussed, or views expressed may not be suitable for all investors. 5paisa will not be responsible for the investment decisions taken by the clients. Multinational IPOs may have many syndicates to deal with differing legal requirements in both the issuer’s domestic market and other regions.

Is a Follow-on Offering a Primary or Secondary Offering?

• The price of follow-on shares is usually at a discount to the current, closing market price.
• Instead, existing shareholders—such as institutional investors or company members—sell some of their shares to the public.
• Whether it’s good to invest in an FPO depends on various factors, including the company’s financial health, market conditions, and your investment goals.
• So, when a company decides to go public and raise funds from the market, it has two primary options.
• Enhance your proficiency in Excel and automation tools to streamline financial planning processes.

The FPO aimed at shoring up Vi’s balance sheet and providing funding flexibility for the capital-starved telecom firm to grow operations. So its prime objective was to raise funds for ongoing capex, debt repayments, and working capital and improve liquidity that had dried up with persistent losses. Although business owners can raise initial funds through an Initial Public Offering (IPO), what happens when the company needs additional funds? This is where a Follow-On Public Offer (FPO) helps business owners to ensure they have adequate funds to keep their business activities running smoothly.

It involves the issuance of additional shares to the existing shareholders or the general public. The meaning of a follow-on offering (FPO) refers to a process where a company issues additional shares of stock following its initial public offering (IPO). FPOs allow companies to raise more capital by selling more shares to the public. IPOs and FPOs are used by companies or corporations that want to raise funds from the public.

In some cases, the company might simply need to raise capital to finance its debt or make acquisitions. In others, the company’s investors might be interested in an offering to cash out of their holdings. The price of follow-on shares is usually at a discount to the current, closing market price. Also, FPO buyers need to understand that investment banks directly working on the offering will tend to focus on marketing efforts rather than purely on valuation.