FPO Full Form-FPO Meaning

FPO Full Form

FPOs (Follow ON Public Offers) is also referred to as secondary offerings because they are issued by a company that is already listed on an exchange to raise capital or reduce debt. The distinction between an IPO and an FPO is in the timing and listing; FPOs do not exist unless a company is already listed and has completed its initial public offering.

Understand a Follow-On Public Offer (FPO)

When a company goes public, it offers an initial public offering (IPO) for the public to subscribe to in order to raise capital for its operations, with the promise of a return on the public’s investment. The shares offered may be new company shares, promoters’ old shares, or private shares. This section distinguishes between dilutive (new) and non-dilutive shares.

When the company issues diluted follow-on shares, it is primarily seeking to reduce its debt by increasing the number of shares. It has a tendency to reduce earnings per share, significantly altering the capital structure of the business. Non-diluted offerings are those in which no new shares are issued; only existing, privately held shares are brought public. It has no effect on earnings per share; earnings per share remain unchanged.

An At-The-Market offering occurs based on the price band. Due to the fact that the FPO price is determined by market forces, as opposed to an IPO price that is predetermined within a limited price range, the company can decide to withdraw from the FPO if the price on that day is unfavorable to them, thereby withdrawing from issuing the shares for that day. This enables the business to raise capital as and when it is required.

The Procedure for a Follow-on Public Offer (FPO)

Public companies may also benefit from an FPO by submitting an offer document. FPOs are not to be confused with IPOs or initial public offerings of equity. FPOs are secondary issues that are issued after a company is listed on an exchange.

Types of Follow-on Public Offers

There are two distinct types of follow-on public offerings. The first is dilutive to investors, as the company’s Board of Directors agrees to increase the company’s share float or available shares. This type of follow-on public offering is used to raise capital for debt reduction or business expansion, resulting in an increase in the number of outstanding shares.

Non-dilutive follow-on public offers are the other type. This strategy is advantageous when directors or significant shareholders sell privately held stock.

1. Diluted Follow-on Offering

When a company issues additional shares to raise capital and then sells those shares to the public market, this is referred to as a diluted follow-on offering. Earnings per share (EPS) decrease as the number of shares increases. The funds raised through an FPO are frequently used to reduce debt or alter the capital structure of a business. The infusion of cash benefits the company’s long-term outlook, and thus benefits its stock.

2. Non-Diluted  Follow-on Offering

Non-diluted follow-on offerings occur when holders of previously issued shares bring them to the public market for sale. The cash proceeds from non-diluted sales are distributed directly to shareholders who sell their stock on the open market.

Often, these shareholders are the company’s founders, board members, or pre-IPO investors. Due to the absence of new shares, the company’s earnings per share remain unchanged. Follow-on offerings that are not diluted are also referred to as secondary market offerings.

At-the-Market Offering (ATM)

An at-the-market (ATM) offering enables the issuing company to raise capital on a need-to-know basis. If the company is dissatisfied with the available share price on a particular day, it may choose not to offer shares. ATM offerings are occasionally referred to as controlled equity distributions due to their ability to sell shares on the secondary market at the current market price.

The Following Public Offer’s Highlights (FPO)

FPOs are priced lower than the listed shares’ current market price. Eventually, the share’s market price will equal the FPO issue price. Investing in FPOs carries less risk than investing in an initial public offering, as the company has already demonstrated its market performance. For less-informed investors, sufficient but not complex information is available to aid in their investment decision-making.

FPO Full Form

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