Follow-On Public Offer (FPO)

What is an FPO?

A follow-on public offer (FPO) is the issuance of additional shares by a company that is already publicly listed. Unlike an initial public offering (IPO), which brings a private company to the public markets for the first time, an FPO raises new capital (or provides liquidity for existing shareholders) after the company is already trading.

Key takeaways

• FPOs raise equity for an already public company or provide liquidity to existing shareholders.
• Proceeds from dilutive FPOs go to the company; proceeds from non-dilutive offerings go to selling shareholders.
• Main types: dilutive, non-dilutive (secondary), and at-the-market (ATM) offerings.
• FPO announcements often put downward pressure on share price because of dilution or perceived negative signals.

How FPOs work

A company completes an FPO by offering shares through the stock exchange. The process typically requires regulatory filings and disclosure documents. Proceeds from a dilutive FPO are received by the company and are commonly used to:
* Reduce debt or improve capital structure
Fund research and development or new product launches
Finance expansion into new markets or other growth initiatives

In a non-dilutive FPO, existing shareholders (founders, early investors, or insiders) sell their shares to the public; the company does not receive proceeds and its share count does not increase.

Shares in an FPO may be sold via book-building, fixed-price offerings, or through an at-the-market mechanism.

Types of FPOs

Dilutive FPO

• The company issues new shares, increasing the total shares outstanding.
• Dilution can reduce earnings per share (EPS) and ownership percentages for existing shareholders.
• Proceeds go to the company and can improve long-term prospects if invested wisely.

Non-dilutive (secondary) FPO

• Existing shareholders sell their holdings to the public.
• No new shares are created, so EPS and the company’s balance sheet are unaffected.
• Provides liquidity to insiders and early investors.

At-the-Market (ATM) offering

• The company sells shares incrementally into the secondary market at prevailing market prices.
• Offers flexibility: the issuer can raise capital as needed and pause sales if prices are unfavorable.
• Also called controlled equity distribution; typically involves minimal upfront marketing and management effort.

Market impact

Announcements of FPOs can cause negative short-term reactions in share price. Reasons include:
* Potential dilution of earnings and ownership (for dilutive offerings)
Perception that management sees the stock as overvalued or that the company needs cash urgently
New shares often being introduced at or below market prices

Examples: Several companies completed FPOs in recent years, illustrating typical use—one company issued 10 million shares valued at about $210 million, and another issued 12.42 million shares valued near $20 million.

Advantages and disadvantages

Advantages
* Raises equity without increasing debt or debt-servicing costs
Provides funds for growth, restructuring, or debt reduction
Non-dilutive FPOs allow insiders to monetize holdings without changing the company’s capital structure
* ATM offerings provide flexibility and can reduce market disruption

Disadvantages
* Dilution can lower EPS and reduce existing shareholders’ ownership stakes
FPO announcements may depress share price and signal potential weaknesses
ATM offerings typically raise smaller amounts and results depend on market volatility and timing

Bottom line

An FPO is a common tool for public companies to raise additional capital or provide liquidity to existing investors. Choosing between dilutive, non-dilutive, or ATM approaches depends on the company’s financing needs, tolerance for dilution, market conditions, and timing. While FPOs can strengthen a company’s balance sheet and fund growth, they often carry short-term share price risks due to dilution and market perception.