Follow-On Offering

What Is a Follow-On Offering (FPO)?

A follow-on offering (FPO) is the sale of additional shares by a company after its initial public offering (IPO). Public companies use FPOs to raise equity capital for purposes such as debt repayment, acquisitions, refinancing, working capital, or other corporate needs. FPOs can also provide a way for existing shareholders to sell previously issued shares to the public.

Key Takeaways

• FPOs allow public companies to issue or sell shares after their IPO.
• They can be dilutive (new shares issued) or non-dilutive (existing shares sold).
• Dilutive FPOs increase the share count and typically reduce earnings per share (EPS); non-dilutive FPOs do not change EPS.
• Follow-on share pricing is market-driven and often discounted to attract buyers.
• Companies must register FPOs with regulators and provide a prospectus.

How Follow-On Offerings Work

Because the company’s stock is already publicly traded, market participants can value the business before the offering. Issuers usually work with investment banks to structure, market, and price the offering. Pricing is determined by market conditions and investor demand; issuers often set a discount to the prevailing market price to make the offering attractive.

Typical mechanics include:
* Registration with regulators and distribution of a prospectus.
* Coordination with underwriters who market the offering and place shares.
* An overallotment option (often called a greenshoe) that allows underwriters to buy additional shares within a set period to stabilize the market, when applicable.

Why Companies Use FPOs

Common reasons include:
* Raising capital to fund growth initiatives or acquisitions.
* Paying down or refinancing debt.
* Improving or changing the company’s capital structure.
* Allowing founders, early investors, or other insiders to sell shares (liquidity).

Types of Follow-On Offerings

Dilutive vs. Non-Dilutive
* Dilutive FPO (Primary offering): The company issues new shares and receives the proceeds. The total number of shares outstanding increases, which typically reduces EPS and can dilute existing ownership percentages.
* Non-dilutive FPO (Secondary offering): Existing shareholders sell previously issued shares to the public. Proceeds go to the selling shareholders, not the company. No new shares are created, so EPS and the company’s capital structure remain unchanged.

Primary vs. Secondary
* Primary offering = company issues new shares (dilutive).
* Secondary offering = public resale of existing shares by current shareholders (non-dilutive).

Real-World Examples

• Google (Alphabet) — After its 2004 IPO, Google completed a substantial follow-on offering in 2005 that raised more than $4 billion, reflecting strong market demand a year after going public.
• AFC Gamma (2022) — The company announced an offering of 3 million shares at $20.50 per share, with underwriters granted a 30-day option to purchase an additional 450,000 shares. Proceeds were intended to fund loans and working capital.

Investor Considerations

Before participating in an FPO, investors should evaluate:
* Purpose of the offering — Is the company raising funds for productive uses (growth, acquisitions) or simply refinancing expensive debt?
* Dilution impact — For dilutive offerings, assess how increased shares will affect EPS, ownership, and valuation metrics.
* Pricing and market conditions — Discounts and overall market sentiment influence immediate price reaction.
* Who is selling — Large insider sales in a secondary offering may signal different motivations than a company-driven primary raise.

Conclusion

A follow-on offering is a common tool for public companies to access additional capital or provide liquidity for existing shareholders. Understanding whether an FPO is dilutive or non-dilutive, why the company is raising or offering shares, and the pricing context can help investors assess the potential impact on valuation and future stock performance.