Follow-on Public Offering What Is It, Advantages & Disadvantages

A company uses FPO after it has gone through the process of an IPO and decides to make more of its shares available to the public or to raise capital to expand or pay off debt. But can companies only raise funds through the share market once in their lifetime? Here’s where the concept of a Follow-On Public Offer (FPO) comes into the picture. Recently, the segment has been extended to Non-Promoters of eligible Companies holding at least 10% of the share capital of the company to offload via offer for sale. Investments in the securities market are subject to market risk, read all related documents carefully before investing. With this, you must now be aware of what an FPO in the stock market is and the different types of FPOs possible.

FPO Vs IPO

After listing on a stock exchange, companies can actively issue Follow on Public Offerings (FPOs) to raise additional capital from the public. Funding expansion plans, making acquisitions, paying off debt, or investing in new projects are some examples. Larger and established companies often do FPOs with a higher market capitalization. Thus, FPOs can also help increase the liquidity of a company’s shares and provide an exit strategy for existing investors. IPOs and FPOs are used by companies or corporations that want to raise funds from the public. Qualified Institutional Placement (QIP) and Follow-on Public Offering (FPO) are methods companies use to raise capital, but they differ in investor type and share issuance.

• The companies that have already raised funds through IPOs by issuing their shares for the first time can issue additional shares through FPOs.
• After closing the offer, the new shares offered under the FPO get listed alongside the existing shares on the stock exchanges upon completion of post-offer formalities.
• Private entities generally use IPOs to expand their funds, while government entities use FPOs to reduce their stake in the company or cover their debts.
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Shareholders often react negatively to secondary offerings because they dilute existing shares, and many are introduced below market prices. This approach is useful when directors or substantial shareholders sell-off privately held shares. Commonly referred to as a secondary market offering, there is no benefit to the company or current shareholders. By paying attention to the identity of the sellers on offerings, an investor can determine whether the offering will be dilutive or non-dilutive to their holdings. FPO (Follow on Public Offer) is a process by which a company, which is already listed on an exchange, issues new shares to the investors or the existing shareholders, usually the promoters. The company appears for an FPO for multiple reasons, like the company might need funds to finance its debt or make an acquisition.

Follow-on offering

A follow-on public offer presents an additional opportunity for retail investors to gain exposure in an already listed company by applying for fresh shares issued to raise growth capital. A Follow-On Public Offer (FPO) is a type of public offering in which a company already listed on the stock exchange issues new shares of its stock to the public. The companies that have already raised funds through IPOs by issuing their shares for the first time can issue additional shares through FPOs. A follow-on public offer (FPO) is the issuance of new shares by a public company after its initial public offering (IPO). As such, FPOs mean that additional shares are offered to the public by companies that are already listed on exchanges. Follow-on public offerings, which are also known as secondary offerings, are generally used by companies to raise additional capital for their growth.

FPOs should not be confused with IPOs, the initial public offering of equity to the public. FPOs are additional issues made after a company is established on an exchange. When it comes to the pricing of an upcoming IPO, it is a fixed price issue or the price is set through a book building process. In the case of a Follow-On Public Offering, the price discovery mechanism is more or less similar to an IPO. However, the only difference is that the price of a follow-on issue is almost always lower than that prevailing market price. A Follow-On Public Offering is the process through which a company can issue its shares once again to the public to raise funds through the sale.

Follow-On Public Offerings are an excellent way for companies to gain access to capital for furthering their business objectives. Over the course of the Indian stock market’s history, there have been several examples of Follow-On Public Offerings. Investing in FPO (Follow on Public Offering) can be a wise choice if you’re looking for a profitable investment opportunity. Notably, companies that have already gone public and have a good track record of performance typically offer FPOs. For those who are willing to have a long-term investment horizon can consider investing in FPOs. The securities quoted in the article are exemplary and are not recommendatory.

The infusion of cash is good for the long-term outlook of the company, and thus, it is also good for its shares. 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.

Should you subscribe to an FPO?

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Types of Follow-on Public Offerings

• FPOs can offer an opportunity for growth or dilution of existing shares, so thorough research is crucial before investing.
• The FPO meaning refers to the process through which companies that have previously raised capital via an Initial Public Offering (IPO) can offer more shares to generate further funding.
• As with any investment, due diligence is key to making informed decisions.

To apply for an FPO, you first need to have a demat and trading account with any brokerage house. Once the FPO opening date nears, locate the FPO details what is follow on public offer on your brokerage platform or the stock exchange website. Carefully read through the offer document to know the issue objectives, price band, lot size, etc.

Few Rules and Regulations in an Offer for Sale:

In other cases, the share prices of companies that opted for FPOs fell so steeply that they never recovered. After a follow-on offering, more shares are available in the market, potentially diluting ownership and affecting earnings per share. IPOs and FPOs are used by companies to raise capital, either newly listed (IPO) or already listed (FPO) on stock exchanges.

The share price during the initial public offering (IPO) is arrived at based on the company’s performance, and the company hopes to achieve the desired price per share during the IPO listing. However, the share price for FPO is market-driven because the share is already trading on the stock exchange. Therefore, this helps the investor understand the company valuation before buying. Also, the price of follow on public shares is usually at a discount price than the current trading price.

A company issuing fresh shares through FPO can pull out of the offering if its share price falls. Due to its ability to offer shares on the secondary market at current market prices, at-the-market FPOs are also called controlled equity distributions. 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).

Benefits of Follow on Public Offers

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. This includes new investors looking to purchase the shares of a company as well as existing shareholders wanting to increase their ownership within the entity. In a non-dilutive FPO, however, the control of the company isn’t diluted since no new shares are issued to the investors.

This often leads to a decrease in earnings per share (EPS) as profits are spread across a larger number of shares. Initial Public Offer is when unlisted companies offer shares for the first time and get listed on the stock exchanges. FPOs is something that happens when a company has already listed on the exchanges and wants to offer shares again to the public.

QIP involves a private placement of shares to qualified institutional buyers, such as mutual funds and foreign investors, without making a public offering. On the other hand, FPO is a public offering of additional shares to the general public and existing shareholders. 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. The issuing company is able to raise capital on an as-needed basis with the option to refrain from offering shares if unsatisfied with the available price on a particular day. Public companies can complete an FPO by offering additional shares on the open market.