FPO in share market firm may be sold to the general public in a follow-on public offering (FPO). Corporations can raise more funds for various reasons, including expanding their company operations or paying off debt. A firm must have been publicly traded via an initial public offering (IPO) to be eligible for an IPO. Shares provided via what is fpo must also be open to the whole public, not simply current shareholders, as is the case now. In this blog, we will learn what is follow on public offer, how it worlds, its types and many more.

FPO Meaning

Follow on public offer meaning Shares in a publicly traded firm, are issued to investors in a follow-on public offering (FPO). A firm may issue more shares (IPO) after an initial public offering. Secondary offerings, or follow-on offerings, are another term for these gifts.

How Does a Follow-On Public Offer Work?

Public firms may also use an offer document to take advantage of an FPO. There is a difference between an FPO and an IPO, the first public stock offering to the general public. Following the first listing of a firm on a stock market, new issues known as FPOs are created.

Types of Follow On Public Offer

Here are the types of Follow On Public Offer:

Diluted Follow-on Offering:

Shares are diluted in follow-on offerings when a corporation issues more stock to raise money and then offers those shares on the stock market to investors—the profits per share (EPS) decline with an increase in the number of shares. Most of the time, the money obtained via an FPO is used to decrease debt or alter the firm’s capital structure. The company’s long-term outlook is boosted by the capital influx and its stock price.

Non-Diluted Follow-on Offering:

Non-diluted follow-on offerings occur when existing, privately owned shares are brought to the public market for sale by holders of previously issued ones. Non-diluted stock sales generate cash for the shareholders who put their claims on the market.

Also Read: What is Day Trading on Initial Public Offerings (IPO)

Founders, board members, and investors in the firm before its initial public offering (IPO) make up a large portion of these shareholders. This company’s earnings per share stayed steady since no new shares were issued. Secondary market offers are sometimes known as non-diluted follow-on offerings.

At-the-Market Offering (ATM):

Capital may be raised at any time via an ATM (at-the-market) offering. As long as the share price isn’t too high, it’s OK for the corporation to hold off on issuing shares. Because of their capacity to sell shares in the secondary market at the prevailing price, ATM offers are frequently referred to as “managed equity distributions.”

Follow-On Public Offer vs Initial Public Offer

IPOs and FPOs have several significant differences:

The primary objective of the project:

An IPO’s main goal or objective differs from an FPO’s primary goal or objective. A corporation issues an initial public offering (IPO) to raise money for expansion. As a result, they decide to raise capital via an initial public offering.

The firm may require more funding as soon as the IPO is successful. An FPO may help in this situation. Increase the company’s equity or reduce the promoter’s stake.

Characteristics of the Business and Its Quality:

To be successful in the market, you must examine the company’s profile. When you know a lot about a firm, you can make an informed investment. If the firm, on the other hand, is suspect, you may not learn anything about it.

To learn more about a company’s work, business prospects, financial performance, and critical hazards, you should review the Draft Red Herring Prospectus (DRHP) before it goes public. In addition, there is nothing more you can learn about the firm. When choosing the most pleasing initial public offering (IPO), investors mainly depend on their excellent judgement and the advice of their brokers. When it comes to an IPO, picking the best firm demands an acute sense of determination and an ability to filter through the information available.

Companies with a proven track record in the stock market are eligible to provide an FPO. Since the company’s stock performance and track record are readily available, investors may quickly learn about the stock. You may get a rough idea of the stock’s value by looking at the stock’s demand and supply. Check out the company’s performance after its IPO.

Consequently, the FPO procedure makes it easier to locate reliable information about an organisation than the IPO process.

Performance:

IPOs provide better returns than FPOs. The advantage of an IPO is that it allows investors access to a firm at an early stage, making it more profitable than an FPO. IPOs have a higher level of risk than FPOs. Unlike IPOs, FPOs are typically launched by firms with an established track record. Those in the stabilisation phase issue FPOs, as opposed to companies in the growth phase, which issue IPOs.

Conclusion

You should take notice any time a firm with a stake announces a follow-on offering. As a result, each of your shares will reflect a lesser percentage stake in the firm in FPOs. If and when the corporation decides to distribute its earnings to shareholders, it might imply reduced dividends in the future. Invest in IPOs and FPOs with the ease of a Nuuu Demat account. Nuuu is a well-known Indian brokerage firm with a long history in wealth management. Before making a choice, consult experts’ advice and complimentary research reports.