What Is a Subsequent Offering?
A subsequent offering is the issuance of additional shares of stock after the issuing company has already had an initial public offering (IPO). An IPO represents the first shares issued by a new publicly traded company, while a subsequent offering is the sale of shares of a current publicly-traded company. A subsequent offering is also known as a follow-on offering.
Understanding Subsequent Offering
A subsequent offering can be either dilutive or non-dilutive. In a dilutive subsequent offering, new shares of stock are created by the issuing company. The creation of these shares increases the total number of shares outstanding, and as a result, dilutes earnings on a per-share basis. In a non-dilutive subsequent offering, privately held shares of the company, for example, shares held by the company's founders, directors or other insiders, are offered for sale to the public. Because no new shares of the company's stock are created, earnings are not diluted on a per-share basis.
Reasons for Subsequent Offerings
Subsequent offerings occur for many reasons. A company may seek to complete a dilutive subsequent offering to raise capital for new opportunities or to bolster cash reserves. In the case of a non-dilutive offering, insiders may desire to take advantage of high demand for company shares to diversify personal or business holdings or lock-in gains on their investment.