In the case of a dilutive FPO, the issue of new shares can lead to the dilution of existing shareholders’ equity. In the case of a non-dilutive FPO, existing shareholders can sell their shares, providing them with liquidity. Finally, the new shares are listed on the stock exchange and begin trading.
Follow-on Public Offerings (FPO) in the Market
FPO is different from an Initial Public Offering (IPO), which is the first issue of a company. In contrast, a non-dilutive FPO involves the sale of shares held by existing shareholders, such as promoters or private equity investors. This doesn’t what is follow on public offer affect the total number of shares in circulation and therefore doesn’t lead to dilution. Follow-on offerings provide publicly traded companies a crucial avenue to raise additional funds post-IPO, catering to various needs like growth, debt reduction, and project funding. In a traditional follow-on offering, companies work with underwriters to sell additional shares to investors. The term public offering is equally applicable to a company’s initial public offering, as well as subsequent offerings.
The COVID-19 pandemic has accelerated certain trends, like the increased use of technology in follow-on offerings. It has also led to greater market volatility, affecting the timing and success of follow-on offerings. Follow-on offerings can also signal industry trends, with companies in growing sectors often conducting them to fund expansion. Companies must file a registration statement, including a prospectus providing detailed information about the offering. Investors must carefully consider the purpose of the follow-on and how it might shape the company’s future.
In FP either new shares are offered or old promoter shares are put on offer again. The non-dilutive FPO does not carry any material benefits for the company. Therefore, the company intended to use the funds raised through the FPO to support its lending operations and general corporate purposes. Although business owners can raise initial funds through an Initial Public Offering (IPO), what happens when the company needs additional funds?
These offerings typically occur after the company has already gone through an initial public offering (IPO) and the shares have started trading publicly. The main difference between an IPO and an FPO is the timing of the offering. A company may need more money to fund big projects or expand its business. To raise this money, it can offer more shares to the public through a Follow-on Public Offer (FPO). In a dilutive FPO, new shares are created and sold, which increases the total number of shares in the market.
Types of Follow-on Public Offers (FPOs)
The process witnesses the current shareholders selling their stakes for personal gains, resulting in no change in the share float. Although some research is still needed to understand the company’s history and performance, it’s generally easier to evaluate an FPO than an IPO. This makes FPOs appealing to investors who are willing to take on some risk in exchange for the chance to buy shares at a lower price. The shares had a face value of Rs 2 with a price band of Rs 615 to Rs 650 per share. The lot size for the FPO issue was 21 shares, with the issue size amounting to Rs 4,300 crores.
But just one year later, clothing company XYZ finds it’s having a hard time keeping up with demand and needs to expand its manufacturing. To help finance this endeavor, the company decides to issue a follow-on offering, issuing another 100 shares of stock—once again registering them with the SEC. The process to raise funds in an FPO is lengthy and often involves creating a prospectus, waiting to receive interest, then allotting shares to investors.
Although public offerings of stock get more attention, the term covers debt securities and hybrid products like convertible bonds. As the financial markets continue to evolve, secondary offerings will likely remain an important component of the capital-raising landscape. In an RDO, a company sells its shares directly to a select group of investors, typically institutional investors, without a public offering. This type of offer often has lower costs and faster execution compared to traditional public offerings.
The future of FPOs is likely to be influenced by potential changes in the regulatory environment and the impact of technology. Advances in technology, such as blockchain and AI, may streamline the FPO process and improve efficiency. Furthermore, regulatory changes may enhance transparency and investor protection. Additionally, new trends and innovations may emerge, such as alternative pricing methods and the growth of FPOs in certain sectors.
What are the Factors Affecting the FPO?
- Thus, the company initially raised capital by issuing an Initial Public Offering (IPO) and has been listed on a stock exchange; it may later opt for an FPO to raise more funds from the market.
- Non-diluted follow-on offerings are also called secondary market offerings.
- The company would look to offer 3 million shares of its common stock at a price of $20.50 per share.
- Follow on Public Offering (FPO) is the way by which a company that is already listed on a stock exchange can raise funds from the public.
However, IPOs involve a company’s first sale of shares to the public and require more extensive disclosures than follow-on offerings. A Follow-on Offering, also known as a Secondary Offering, is a financial process where an already public company issues additional securities in the market. Insider trading laws and regulations apply to secondary offerings, prohibiting company insiders from trading shares based on material non-public information.
This document includes financial statements, information about the company’s business, and details about how the raised capital will be used. ATM offerings tend to be smaller than traditional follow-on offerings, so if a business is looking to raise a large amount of capital, this may not be the best method. At-the-market (ATM) offerings have several advantages, including minimal market impact.