What is a 'Follow On Public Offer - FPO'
A follow-on public offer (FPO) is an issuing of shares to investors by a public company that is already listed on an exchange. An FPO is essentially a stock issue of supplementary shares made by a company that is already publicly listed and has gone through the IPO process. FPOs are popular methods for companies to raise additional equity capital in the capital markets through a stock issue.
BREAKING DOWN 'Follow On Public Offer - FPO'Public companies can also take advantage of an FPO issuing an offer for sale to investors, which is made through an offer document. FPOs should not be confused with IPOs, as IPOs are the initial public offering of equity to the public, while FPOs are supplementary issues made after a company has been established on an exchange.
Two Main Types of Follow-On Public Offers
There are two main types of follow-on public offers. The first type is dilutive to investors, as the company’s Board of Directors agrees to increase the share float level. This type of follow-on public offering seeks to raise money to pay debt or expand the business. This increases the number of shares outstanding.
The other type of follow-on public offer is non-dilutive. This approach is used when directors or large shareholders sell privately held shares. This is non-dilutive, as no additional shares are sold. This method is commonly referred to as a secondary market offering. There is no benefit to this method for the company or current shareholders.
Knowing that there are two main types of follow-on public offers, and knowing the different effects they have, makes it incredibly important to pay attention to the identity of the sellers on offerings. Investors can tell from this whether or not the offering will be dilutive.
Follow-On Offerings Common
Follow-on offerings are common in the investment world. This is an easy way for companies to raise equity that can be used for common purposes. Companies that announce secondary offerings can see their share price fall as a result. Shareholders often react negatively to secondary offerings, as many come at below-market prices or dilute their existing shares.
In 2013, follow-on offerings produced $201.7 billion in equity raised for companies. This marked the largest amount in four years. Facebook sold $3.9 billion in additional equity and was one of the largest raisers. Secondary offerings are good for investment banks, as they get a piece of the fee pricing. Goldman Sachs managed $24.7 billion worth of secondary offerings in 2013 to lead the way.
In 2015, many companies had follow-on offerings after going public less than a year prior. Shake Shack was one company that saw shares fall on news of a secondary offering. Shares fell 16% on news of a large secondary that came in below the existing share price.