This approach allows companies to avoid the cost and time involved in standard follow-on offerings. This is typically done when the company wants to fund new projects or expansions, pay off debt, or increase its working capital. The shares are offered at a fixed price to the public through a book-building process, with the proceeds going directly to the company. 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.
Non-Dilutive Seasoned Issues
The company and its advisors conduct a thorough review of the company’s financials, operations, and legal matters. They then prepare to offer documents, such as a prospectus or private placement memorandum, which provide investors with essential information about the offering. Another question that may cross your mind is why go for a follow on public offer if the shares of the company are already listed? The only reason why any investor would go for FPOs over listed shares is because of the price advantage.
- Any time a company plans to offer additional shares, it must register the FPO offering and provide a prospectus to regulators.
- When new shares are created and then sold by the company, the number of shares outstanding increases and this causes dilution of the earnings per share.
- Furthermore, regulatory changes may enhance transparency and investor protection.
- It’s when a company that’s already listed on the stock market issues more shares to raise additional funds from the public.
- All of our content is based on objective analysis, and the opinions are our own.
- A follow-on offering, also known as a follow-on public offering (FPO), is a type of public offering of stock that occurs subsequent to the company’s initial public offering (IPO).
Diluted Follow-on Offering
The Mountain View company’s initial public offering (IPO) was conducted in 2004 using the Dutch Auction method. It raised approximately $1.67 billion at a price of $85 per share, the lower end of its estimates. In contrast, the follow-on offering conducted in 2005 raised more than $4 billion at $295, the company’s share price a year later. The FPO presents a good opportunity for the company to raise funds without accruing additional debt. This equity fundraising method is particularly favored by companies that have a good track record and have established trust among investors. Future trends in follow-on offerings include the increasing role of technology and digital platforms, which are streamlining the process and reaching potential investors more effectively.
What Is the Difference Between a Follow-on Offering and an Initial Public Offering?
An IPO occurs when a private company transitions to a publicly traded company where investors can buy and sell shares on a stock exchange. The IPO represents the first time public investors can purchase shares of the company. A seasoned issue, on the other hand, occurs when the management of an existing publicly traded company decides to sell additional shares of stock to raise money.
Influence on Stock Prices
From blockchain technology to artificial intelligence, these innovations can streamline the FPO process and improve efficiency. Any non-compliance can result in penalties and damage to the company’s reputation. Take self-paced courses to master the fundamentals of finance and connect with like-minded individuals. Someone on our team what is follow on public offer will connect you with a financial professional in our network holding the correct designation and expertise. Ask a question about your financial situation providing as much detail as possible.
However, if the market perceives the use of proceeds positively, it may boost the stock price. The company first assesses its need for additional capital, considering factors like current financial position, growth plans, market conditions, and investor sentiment. Companies must comply with various regulations and legal requirements when conducting secondary offerings.
The company will base the price of the new shares on the market price of the outstanding shares. Typically, equity underwriters are investment banks that specialize in working with publicly traded companies to ensure the seasoned issue meets all regulatory requirements. In an effort to facilitate the sale of the new shares, the underwriters will also notify large institutional investors of the upcoming stock sale.