If you follow news related to stock markets, you must be aware of the term Initial Public Offering or IPO. But, have you ever come across the term Follow-on Public Offering? Do you know FPO meaning? A Follow-on Public Offering is an excellent way through which firms listed on the stock exchange issue shares to the public. It differs from an IPO or Initial Public Offering when an organisation offers its shares to the public for the first time. Business enterprises need capital to repay debt, expand business activities, etc., so they opt for IPO. But, if they require more funds, they opt for FPO. What is Follow-on Public Offering, and what are its advantages? The article covers some essential information about FPO, including FPO full form. Read on to know more!
What is a Follow-on Public Offering or IPO?
An FPO meaning refers to the procedure of issuing shares to the public in a publicly listed firm. The shares are offered to the public for subscription to raise more capital. A Follow-on Public Offering is usually made to make acquisitions, fund research and developmental activities, etc. It might sound similar to an Initial Public Offering, but FPOs and IPOs differ. Chronologically, a Follow-on Public Offering comes after an Initial Public Offering. FPO’s full form meaning is that public offerings made after Initial Public Offerings are Follow-on Public Offering.
Advantages of Follow-on Public Offering or IPO
A Follow-on Public Offering has numerous advantages over other equity financing forms. A few merits of FPO full form are as follows:-
- It furnishes a strategy for business organisations to raise more capital without spending much, incurring prices linked with Initial Public Offerings.
- It gives a more liquid and transparent market for people participating in a Follow-on Public Offering, which can raise demand for a firm’s shares.
- The liquid and transparent nature of a Follow-On Public Offering makes it effortless for investors to purchase and sell shares.
- A Follow-On Public Offering diversifies the equity base of a company.
- It can help business enterprises diversify their investor base, decreasing the dependency on a smaller number of large investors.
- It can decrease the risk of a sudden dip in share values if one or more investors decide to trade their shares.
- A successful Follow-On Public Offering can increase a company’s reputation in the market because it illustrates investors’ confidence in the business venture’s growth potential and financial stability.
Types of Follow-on Public Offerings
The types of FPOs are as follows:-
According to its name, there is a dilution in the existing shareholders’ ownership. The firm issues new shares to the public, increasing the overall number of outstanding shares. When there is an increase in the number of shares, the current share ownership percentage reduces because shares issued newly represent a specific ownership proportion in the firm.
Shareholders of existing and privately held shares might sell previously issued shares in the open market. Such trading of shares is called a non-dilutive follow-on offering. In this case, the shares offered to the public are those that non-public shareholders hold. These non-public shareholders are previous investors who participated in IPOs, promoters or a firm’s directors.
How Do FPOs Work?
An FPO meaning is among the most significant strategies for a business organisation to run their business operations and activities smoothly. Here is how an FPO full form works to extra shares to its investors:-
- Companies wanting to issue FPOs appoint intermediaries like investment banking institutions and underwriters for help.
- It prepares and files with SEBI to offer documents for the FPO, including details like FPO size, lot size, etc.
- When SEBI sanctions the offer document, it sets a cost per share for a Follow-on Public Offering. It is the cost at which investors will file applications for shares included in the lot.
- A firm opens the FPO for a specific tenure during which you can place your bid as an investor. When the bidding ends, the firm closes the FPO.
- When the company ends the applications for FPOs, the firm allocates the shares to the investors who applied, with the final bidding cost. Later, the issued shares are listed on the stock exchange.
An FPO meaning is apt for a business organisation if it wants to raise surplus capital from the general public after raising capital with the help of an Initial Public Offering. Since the organisation already has its shares listed via an Initial Public Offering, it can only raise more capital from a Follow-on Public Offer where existing or new investors can invest and increase their ownership. An FPO full form can be profitable for the issuing firm and its investors because it furnishes an opportunity for the organisation to raise funds for expansion and for investors to earn profits. Nevertheless, a Follow-on Public Offer is risky, and you should research thoroughly and evaluate the pros and cons before participating.
1. Which entities use Follow-on Public Offers?
Firms or corporations that wish to raise funds from the public use FPO. Firms that already traded publicly and wish to raise surplus capital by allocating more shares to the public.
2. What is the reason for using a Follow-on Public Offer?
Firms use FPOs to diversify their equity base. Companies use Follow-on Public Offers after going through an Initial Public Offering and decide to make more shares available to the public to raise surplus capital, expand their operations and grow or repay debt.
3. Is FPO profitable?
One of the most important merits of a Follow-on Public Offer is the opportunity to purchase shares at a lower price than the existing rate in the market. It could lead to profitable returns if the market value increases after a Follow-on Public Offer. Nevertheless, a Follow-on Public Offer has its risks.
4. Can current shareholders take part in a Follow-on Public Offer?
Current shareholders can also participate in the Follow-on Public Offer by buying surplus shares or selling a few of their existing ones. Follow-on Public Offers are a strategy to get into the capital market and raise surplus funds without taking more debt,
5. What is a primary and secondary Follow-on Public Offer?
A primary Follow-on Public Offer is the direct sale of a firm’s shares from the organisation, which are issued newly. On the other hand, a secondary Follow-on Public Offer is the resale of a firm’s existing shares publicly from current stockholders.