Follow-on Public Offer (FPO)
What Is a Follow-on Public Offer (FPO)?
A follow-on public offering (FPO) is the issuance of shares to investors by a company listed on a stock exchange. A follow-on offering is an issuance of additional shares unveiled by a company after an initial offering (IPO). Follow-on offerings are otherwise called secondary offerings.
How a Follow-on Public Offer (FPO) Works
Public companies can likewise exploit a FPO through an offer document. FPOs ought not be confused with IPOs, the initial public offering of equity to the public. FPOs are additional issues made after a company is laid out on an exchange.
Types of Follow-on Public Offers
There are two primary types of follow-on public offers. The first is dilutive to investors, as the company's Board of Directors consents to increase the share float level or the number of shares accessible. This sort of follow-on public offering looks to fund-raise to reduce debt or extend the business, bringing about an increase in the number of shares outstanding.
The other type of follow-on public offer is non-dilutive. This approach is helpful when directors or substantial shareholders sell-off privately held shares.
Diluted Follow-on Offering
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 increase, the earnings per share (EPS) decline. The funds raised during a FPO are most often allocated to reduce debt or change a company's capital structure. The infusion of cash is really great for the long-term outlook of the company, and consequently, it is additionally great for its shares.
Non-Diluted Follow-on Offering
Non-diluted follow-on offerings happen when holders of existing, privately-held shares carry previously issued shares to the public market available to be purchased. Cash proceeds from non-diluted sales go straightforwardly to the shareholders putting the stock out of the shadows market.
As a rule, these shareholders are company founders, individuals from the board of directors, or pre-IPO investors. Since no new shares are issued, the company's EPS stays unchanged. Non-diluted follow-on offerings are additionally called secondary market offerings.
At-the-Market Offering (ATM)
An at-the-market (ATM) offering enables the giving to raise capital on a case by case basis. In the event that the company isn't satisfied with the accessible price of shares on a given day, it can shun offering shares. ATM offerings are once in a while alluded to as controlled equity distributions due to their ability to sell shares into the secondary trading market at the current prevailing price.
Illustration of a Follow-on Offering
Follow-on offerings are common in the investment world. They give a simple approach to companies to raise equity that can be utilized for common purposes. Companies declaring secondary offerings might see their share price fall subsequently. Shareholders frequently respond negatively to secondary offerings since they weaken existing shares and many are presented below market prices.
In 2015, many companies had follow-on offerings in the wake of opening up to the world under a year prior. Shake Shack was one company that saw shares fall after insight about a secondary offering. Shares fell 16% on fresh insight about a substantial secondary offering that came in below the existing share price.
In 2017, follow-on offerings created $142.3 billion in equity raised for companies. There were a total of 737 FPOs in 2017. This obvious a 21% leap in the number of FPOs versus 2016. Be that as it may, the value of FPOs was down 3% year-over-year in 2017.
Features
- The two principal types of FPOs are dilutive — meaning new shares are added — and non-dilutive — importance existing private shares are sold publicly.
- A follow-on public offer (FPO), otherwise called a secondary offering, is the additional issuance of shares after the initial public offering (IPO).
- Companies generally report FPOs to raise equity or reduce debt.
- An at-the-market offering (ATM) is a type of FPO by which a company can offer secondary public shares on some random day, for the most part contingent upon the prevailing market price, to raise capital.
