What is a Follow-On Public Offering (FPO)? - Definition:
A Follow-On Public Offering (FPO) is an issue of stocks that is released by a company that has previously issued an Initial Public Offering (IPO) and already listed on stock exchange. A company intending to offer additional shares to the public registers the offering with regulators, which includes releasing fresh prospectus of the investment.
But unlike an IPO, which includes a fixed or variable price range that the company is looking to sell its shares to the public, the price of a follow-on public offering (FPO) is market-driven.
[Read More: IPO vs FPO: What's the Difference Between IPO & FPO]
As the company is already publicly listed in exchanges and its existing shares are consistently being valued by investors, its shares already having a defined valuation. Hence, any investment banks or underwriters working on the FPO of that company tends to focus on the current market price rather than doing the entire valuation.
Usually, the price of a follow-on public offering (FPO) is usually offered at a small discounted rate (lower price) from the closing market price on the day of the transaction.
Types of Follow-On Public Offer (FPO):
Typically there are two types of Follow-on Public Offers (FPO) that are released in the market. Those are:
A dilutive Follow-on Public Offering (FPO) takes place when a company wants to raise additional funding from the public market. When this occurs, the company releases more shares (additional shares), but the value of the company remains effectively the same. Therefore this type of FPO decreased the per-share earnings (EPS) of the company. The money raised from a dilutive Follow-on Public Offering (FPO) is usually used to pay off outstanding debts and change a company's capital structure.
A non-dilutive follow-on offering (FPO) occurs when company's founders, the board of directors, or other larger shareholders sell their privately held shares on the open market. This type of FPO is called non-dilutive FPO, as no additional shares of the company are sold.
The funds that are pulled from the market goes directly into the account of the shareholder selling those shares and not to the company itself. Since new shares are not being issued, the company's earnings per share (EPS) and capital structure remain unchanged.
Sometimes this type of offering is also referred to as “Secondary market offering”.
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