FPOFull Form - Definition & Advantages of FPO

Definition 

FPO stands for Follow-On Public Offering, which is when a publicly listed company issues new shares to raise additional capital. Companies often use FPOs for business expansion, funding R&D, paying off debts, or making acquisitions. 

Overview 

A follow-on public offer (FPO) is the issuance of shares after the initial public offering (IPO). FPOs are used to raise capital. The types of FPOs are non-dilutive (existing private shares are sold) and dilutive (additional shares are added). An at-the-market offering (ATM) is a type of FPO where secondary public shares are offered based on the current market price. 

Types of FPOs 

1. Dilutive

This is when a company issues additional shares to raise money. The earnings per share (EPS) decreases as the number of shares increases. The funds raised through an FPO are commonly used for debt reduction and capital structure changes. 

1. Non-dilutive

In a non-diluted follow-on offering, current shareholders may resell their shares on the open market. The cash proceeds go to the shareholders who sold their shares. The company’s EPS remains the same in this case. These offerings are also known as secondary market offerings. 

1. Market-Priced Offering (ATM)

An ATM offering is when a company raises money as needed. The company can decide not to offer shares if it is not satisfied with the price. These offerings are often called "managed equity distributions" because they can sell shares at the current market rate. 

Benefits of Follow-On Offerings 

Follow-on offerings are advantageous because they allow companies to raise capital without incurring high IPO costs. They provide a liquified and transparent market for investors, increasing demand for the company's shares. They also help companies diversify their investor base, reducing the risk of a substantial share price drop if large investors sell their shares. 

Benefits of ATM Offerings 

ATM offerings provide a flexible way to raise capital, reduce the risk of sudden share price drops, and are cost-effective. They allow companies to take advantage of market fluctuations by selling shares when prices are high and holding off when prices are low. 

Key Points 

• A follow-on public offer (FPO) or secondary offering occurs when a company issues additional shares after its initial public offering (IPO).
• Companies announce FPOs to raise equity or pay off debts. FPOs are either dilutive (new shares are added) or non-dilutive (existing private shares are sold).
• An at-the-market (ATM) offering is a type of FPO where a company can sell shares at any time based on the current market price.