Follow-On-Public Offering (FPO) is a process by which a company, which is already listed in stock market, issues new shares to the investors in the market.

In simple terms, FPO is issuance of additional share to the investors. It is used by companies to diversify their equity base.

For example – Suppose, company XYZ have raised capital through an IPO process to get itself listed in stock market. Afterwards in future, if the same company wants to raise more capital to pay off some debts, it can issue new or existing securities again in public.

But this time the company does not have to go through the process of listing itself again in share market, it can directly issue its shares to the existing shareholder or to the public. This process of share issuance is called FPO or follow-up-on-public offer.

How FPO is different from IPO

In IPO (Initial Public Offering), an unlisted company raises funds by offering its shares to the public for the first time and get itself listed in the stock market.

Whereas, in FPO (Follow-On-Public Offering), a listed company offers fresh or existing securities to the public for the second time.

MeaningA process of issuing shares to the public for the first time to raise capital for business.A process of issuing shares to the public for the second time to raise additional capital.
IssuerUnlisted companyListed company
Raising capitalFirst timeSecond or more times
Price of each SharesFixed or variable pricePrice according to the market at the time
RiskHighComparatively low
ObjectiveRaising capitalRaising additional capital
ProfitHigher than FPOLower than IPO
TypesEquity and preference sharesDilutive and non-dilutive offering

Types of FPOs

1) Dilutive Offering

Dilutive offering is when a company issues additional shares to the public. This is generally done to pay off some debts.

In this type of offering, the value of company remains constant. And as per the quantity of shares increases, the company’s EPS (earning per share) also decreases.

2) Non-dilutive Offering

In non-dilutive offering, company’s insiders such as company’s founders or members of the Board of Directors sells some of their privately held shares in the public market.

This offering doesn’t increases the number of shares of the company, just the number of shares available for the public increases.

Since no new shares are issued to the public, the company’s EPS (earning per share) remains unchanged. This follow-up offering is also called as secondary market offering.

In which offering should I Invest?

It depends on your risk level. IPO investment comparatively has a higher risk for investors, as we do not know much about the company. An FPO investment is relatively safer for investors as we at least have some data about the company’s stock market history.

IPO investment requires more research compared to FPO investment. IPO have more potential return for investors. If a company kick off a good start just like Burger King. In December 2020, Burger king announced IPO and within few hours the IPO was oversubscribed. It was at the hype, plus investment returns was also great.