What is Follow On Public Offer (FPO)
A follow-on public offer (FPO) is the issuance of shares to investors by a public company that is currently listed on a stock market exchange. An FPO is a stock issue of additional 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 capital markets through an issue of stock.
BREAKING DOWN Follow On Public Offer (FPO)
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.
Two Main 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 is 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.
Commonality of Follow-On Offerings
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 2013, follow-on offerings produced $201.7 billion in equity raised for companies. This marked the most significant amount in four years. Facebook largest offerings, sold $3.9 billion in additional equity. Secondary offerings are good for investment banks, due to the charging of trading fees. 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 after news of a secondary offering. Shares fell 16% on news of a substantial secondary offering that came in below the existing share price.