Definition
A Follow-on Public Offering (FPO) refers to an issuing of shares to investors by a public company that is already listed on a stock exchange. This process happens subsequent to the company’s initial public offering (IPO). The FPO is often used by companies to raise additional equity capital in the capital markets through the sale of new shares.
Key Takeaways
- A Follow-on Public Offering (FPO) is a fund-raising method, typically used by companies that are already publicly listed. The company issues additional shares to investors or the existing shareholders to raise capital.
- It differs from an initial public offering (IPO), which is the first time a company’s stock is offered to the public. The FPO is conducted after the company is already listed on the stock exchange and has gone through the initial public offering.
- The funds raised through an FPO can be used for various purposes including corporate expansion, acquisitions, or to repay debts. However, one potential downside is that issuing more shares can lead to equity dilution, which means existing shares might lose their value.
Importance
A Follow-on Public Offering (FPO) is typically considered vital in finance as it represents an opportunity for publicly traded companies to raise additional equity capital in financial markets.
The capital raised through FPO allows a company to invest in new projects, promote growth, or expand businesses without increasing debt or disturbing existing financial structures.
Furthermore, FPOs can provide existing shareholders with an opportunity to sell a significant portion of their shares and can be an indication of a company’s growth maturity and potential.
Thus, understanding FPOs is crucial for both investors and businesses involved when making informed financial and investment decisions.
Explanation
The primary purpose of a Follow-on Public Offering (FPO) is typically to raise additional equity capital in the financial markets through selling shares. It provides an established company an opportunity to raise debt-free funds for varying purposes such as acquisitions, expansions, debt repayments, or to diversify the existing equity base to increase market liquidity.
It can be effective for businesses that have stock prices significantly higher than their last funding round and wish to capitalize on this. Follow-on Public Offering is commonly used by companies that are already publicly traded.
After the initial public offering (IPO), these established companies issue new shares (secondary shares), or existing shareholders sell their shares to the public (secondary market offering). While an IPO is a way for a company to generate capital and establish its market presence, an FPO should be viewed more as a tool to increase the company’s equity base, restructure debt or provide the company a financial uplift. Its real significance lies in boosting the financial stability of the companies and sustaining their growth pattern.
Examples of Follow on Public Offering
Facebook Follow-on Public Offering: After its initial public offering (IPO) in 2012, Facebook went for a follow-on public offering in
The company offered 70 million additional shares, of which 27 million were newly issued by the company while the rest was sold by Facebook’s CEO Mark Zuckerberg. The funds raised were used to invest in technology, development, and acquisitions for expanding the services.
General Motors Follow-on Public Offering: In 2010, after emerging from bankruptcy, General Motors had a highly publicized IPO. The following year, the company had a follow-on public offering when the U.S. Treasury decided to sell its stake in the company. This reduced the government’s ownership and allowed GM to attract new investors.
Bank of America Follow-on Public Offering: In 2009, during the global financial crisis, Bank of America performed a follow-on public offering to raise capital and strengthen its balance sheet. The bank issued
25 billion shares, raising over $13 billion in funds. This offering helped the Bank to repay its federal bailout funds.
FAQ on Follow on Public Offering
What is a Follow on Public Offering (FPO)?
A Follow on Public Offering (FPO) is when an already listed company issues new shares to the public. The offering can be of two types – a fresh issue of shares or an offer for sale (OFS) from existing shareholders.
How is FPO different from IPO?
An Initial Public Offering (IPO) is when a company offers its shares to the public for the first time, while a FPO is conducted by companies that are already publicly listed. Both are ways for companies to raise capital, but the key difference lies in their usage by first-time versus established publicly-traded companies.
Why would a company issue a Follow on Public Offering?
Companies typically issue a FPO to raise additional equity capital in the capital markets through an offer document. The capital raised can be used for various business purposes like acquisitions, debt reduction, or simply to support the balance sheet.
What are the risks associated with Follow on Public Offering?
Risks associated with a FPO might include a decline in stock price if the market feels that the company is not worth as much as it thought, dilution of share value for existing shareholders, and the possibility that a company may not raise all of the capital it needs if the FPO is not fully subscribed.
How can investors take part in a Follow on Public Offering?
Just like in an IPO, investors can take part in a FPO by applying for the shares through a form. The application can either be made through offline modes or through online platforms provided by brokers.
Related Entrepreneurship Terms
- Secondary Offering
- Underwriting Agreement
- Capital Markets
- Dilution
- Securities and Exchange Commission (SEC)
Sources for More Information
- Investopedia: Comprehensive resource for investing education, personal finance, market analysis and free trading simulators.
- Yahoo Finance: Offers free stock quotes, up to date news, portfolio management resources, international market data, message boards, and mortgage rates.
- NASDAQ: Provides modern trading technology, company profiles, financial services, and a comprehensive overview of the market.
- Bloomberg: Global leader in business and financial data, news and insight. Using the power of technology, we connect the world’s decision makers to accurate information on the financial markets.
