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What is the full form of FPO


FPO: Follow On Public Offer

FPO full form

FPO stands for Follow on Public Offer. It is a process through which a company that is listed on a stock exchange issues new shares to investors or existing shareholders, that are usually the promoters. In simple words, the issuance of new shares by a firm following an IPO (Initial Public Offering) is known as a Follow on Public Offer (FPO). Due to the fact that FPOs (Follow on Public Offers) are issued by companies that are already exchange-listed in order to raise equity or repay debts, they are also known as Secondary Offerings. FPOs don't exist without a firm being listed and having its IPO already on the market, which is how they differ from IPOs in timing and listing.

The Process of a Follow-on Public Offer (FPO)

Public companies may also get benefited from an FPO by submitting an offer document. FPOs and IPOs (Initial Public Offerings) should not be confused. After a corporation is registered on an exchange listing, additional new shares issues called FPOs are made.

A corporation launches its initial public offering (IPO) at the time of listing in order to receive market participation and raise funds for its operations with the guarantee of a profit from the public's contributions. The shares being offered may be brand-new shares provided by the company, pre-existing promoter shares, or private shares. The EPS tends to drop, which significantly alters the capital structure of the organization. Non-diluted offers are the secondary offerings in which only the old, privately held shares that are going public instead of any new shares are released. The EPS is not decreased; it stays the same. An At-The-Market offering takes place based on the price range. Since the FPO price is determined by market forces, in stark contrast to an IPO price that is predetermined within a specific price range, the firm can elect to step back from distributing the shares for that day if the price is not favorable to them. This enables the business to raise capital as and when it is needed.

Features of the Follow-On Public Offer (FPO)

  • The published prices for FPOs are lower than the listed shares' current market pricing. The share's market price starts falling to the FPO issuance price as well.
  • Since the company has already demonstrated its performance in the market, investment in FPOs is less risky than investing in an IPO.
  • Investors with less knowledge have access to adequate but not difficult information to help them make an investment decision.

Types of Follow-On Public Offers

The two primary forms of follow-on public offerings are as follows. As the company's board of directors decides to expand the share float level or the number of accessible shares, the first is dilutive to investors. This form of follow-on public offering aims to obtain capital to lower debt or grow the business, increasing the number of shares outstanding in the process. The other form of non-dilutive follow-on public offers. When directors or major shareholders sell privately held shares, this strategy is helpful.

1. Dilution of the Following Offering

When a business issues extra shares to raise capital and sells those shares on the open market, it engages in a diluted follow-on offering. The earnings per share (EPS) declines as the number of shares rises. The most common uses for the money raised through an FPO are debt reduction and capital structure changes. The addition of capital is beneficial to the company's long-term future, which benefits its shares as well.

2. Follow-On Offering Without Diluting

Holders of current, privately held shares can sell previously issued shares on the open market in a non-diluted follow-on offering. When stock is sold non-diluted, the cash proceeds are given to the shareholders who sold the stock on the open market. These stockholders frequently serve as the company's founders, board of directors members, or pre-IPO investors. The company's EPS stays the same because no additional shares are issued. Secondary market offerings are another name for non-diluted follow-on offerings.

3. Market-Priced Offering (ATM)

By using an at-the-market (ATM) offering, the company issuing the share can raise money as needed. The company may choose not to offer shares if it is unhappy with the price at which they can be purchased on a particular day. Because ATM offerings can sell shares into the secondary trading market at the ongoing market rate, they are sometimes referred to as managed equity distributions.

Example

In the financial industry, follow-on offerings are typical. They give businesses a simple option to raise equity that can be applied to a variety of uses. Companies that announce secondary offers risk seeing a decline in their stock price as a result. Because secondary offers reduce existing shares and many are launched at prices below market, shareholders frequently respond negatively to them.

In 2015, many businesses that had gone public less than a year before launched follow-on offerings. One business whose shares dropped following rumors of a secondary offering was Shake Shack. On hearing about a sizable secondary offering that came in below the current share price, shares dropped by 16%.

In 2017, corporations raised $142.3 billion in equity through follow-on offerings. In 2017, there were 737 FPOs overall. This represented a 21% increase in FPOs compared to 2016. But in 2017, the value of FPOs decreased by 3% from the previous year.


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