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 made by a company after an initial public offering (IPO). However, follow-on offerings are different than secondary offerings.

Key Takeaways

  • A follow-on public offer (FPO) is another issuance of shares after the initial public offering (IPO). 
  • Companies usually announce FPOs to raise equity or reduce debt.
  • The two main types of FPOs are dilutive—meaning new shares are added—and non-dilutive—meaning existing private shares are sold publicly.
  • An at-the-market offering (ATM) is a type of FPO by which a company can offer secondary public shares on any given day, usually depending on the prevailing market price, to raise capital.

How a Follow On Public Offer (FPO) Works

Public companies can also take advantage of an FPO through an offer document. FPOs should not be confused with IPOs, the initial public offering of equity to the public. FPOs are additional issues made after a company is established on an exchange.

A follow-on public offering (FPO) is different from a secondary offering—an FPO includes the release of a prospectus, similar to an initial public offering (IPO). A secondary offering is the release of securities by a shareholder of the company.

Types of Follow-On Public Offers

There are two main types of follow-on public offers. The first is dilutive to investors, as the company’s Board of Directors agrees to increase the share float level or the number of shares available. This kind of follow-on public offering seeks to raise money to reduce debt or expand the business. Resulting in an increase in the number of shares outstanding.

The other type of follow-on public offer is non-dilutive. This approach is useful when directors or substantial shareholders sell-off privately held shares. With a non-dilutive offer, all shares sold are already in existence. Commonly referred to as a secondary market offering, there is no benefit to the company or current shareholders. By paying attention to the identity of the sellers on offerings, an investor can determine whether the offering will be dilutive or non-dilutive to their holdings.

At-the-Market Offering (ATM)

An at-the-market (ATM) offering gives the issuing company the ability to raise capital as needed. If the company is not satisfied with the available price of shares on a given day, it can refrain from offering shares. ATM offerings are sometimes referred to as controlled equity distributions because of their ability to sell shares into the secondary trading market at the current prevailing price.

Example of a Follow-On Offering

Follow-on offerings are common in the investment world. They provide an easy way for companies to raise equity that can be used for common purposes. Companies announcing secondary offerings may see their share price fall as a result. Shareholders often react negatively to secondary offerings because they dilute existing shares and many are introduced below market prices.

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 after news of a secondary offering. Shares fell 16% on news of a substantial secondary offering that came in below the existing share price.

In 2017, follow-on offerings produced $142.3 billion in equity raised for companies. There were a total of 737 FPOs in 2017. This marked a 21% jump in the number of FPOs versus 2016. However, the value of FPOs was down 3% year-over-year in 2017.