An initial public offering (IPO) is the process through which an unlisted business first offers shares to the general public and becomes listed on the stock exchange. On the other hand, an FPO is a procedure that takes place following an IPO, during which the business offers more shares to the general public. Let’s get into more information about the process of following public offers and their types.
What is FPO?
A follow-on public offering (FPO) is when a publicly traded firm that is already on the stock market issues shares to the general public. Companies can raise more money through a follow-up IPO to expand their operations, pay off debt, or for other reasons. However, the business must already be open to the public after issuing shares in an initial public offering (IPO). Additionally, the shares made available through the FPO must be accessible to everyone, not just current shareholders.
The decision on the stock price during the initial public offering (IPO) is based on the company’s performance. However, because FPO shares are already traded on the stock exchange, the market determines the share price. Before investing, this aids the investor in understanding the firm’s valuation.
Types of FPO
- Diluted FPO
Diluted follow-on offers when a business issues extra shares to raise capital and sell them on the open market.EPS declines with a rise in the number of shares. Debt reduction and capital structure modifications are the most common uses for the money raised through an FPO. Adding capital benefits the company’s long-term prospects and helps its shares.
- Non-Diluted FPO
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. As there is no issuance of additional shares, the company’s EPS stays the same. Secondary market offerings are another name for non-diluted follow-on offerings.
Difference between FPO and IPO
An initial public offering occurs when a private company goes public and first offers its shares in exchange for the general public to purchase. A follow-on offering occurs when an already established public company (one that has completed an IPO) issues more shares to the public to earn additional funds.
FPO investment is much less risky than IPO investment when compared. Data on the company’s historical share market performance will be available as soon as the FPO is released. Due to the “reward for risk-taking behavior,” investing in an FPO has a lower chance of making money than in an IPO.
Conclusion
Depending on a person’s financial objectives and capacity for risk, they may decide to invest in an FPO or IPO in the capital market. Every investment strategy has unique benefits and restrictions. Before making a choice, it is essential to have a basic knowledge of the market and the company. The Shoonya app is a multi-asset online platform where you can enquire about the company before buying an IPO.