Follow-On Public Offer(FPO)

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Follow-On Public Offer(FPO)

Definition of Follow-On Public Offer(FPO):

Follow-On Public Offer(FPO) is an abbreviation of a Follow-On Public Offer. The process of FPO starts after an IPO. FPO is a public issue of shares to investors at large by a publicly listed company. In FPO, the company goes for a further issue of shares to the general public with a view to diversifying its equity base. A prospectus is offered by the company.

There are two types of FPO:

  • Dilutive offering
  • Non-Dilutive offering

(A)Dilutive FPO: In dilutive FPO, the company issues an additional number of shares in the market for the public to buy however the value of the company remains the same. This reduces the price of shares and automatically reduces the earnings per share also.

(B)Non-dilutive FPO: Non-dilutive IPO takes place when the larger shareholders of the company like the board of directors or founders sell their privately held shares in the market. This technique does not increase the number of shares for the company, just the number of shares available for the public increases. Unlike dilutive FPO, since this method is not doing anything to the number of shares of the company, it does not do anything to the company’s EPS.

If we differentiate between IPO and FPO, FPO is a cheaper and safer option as compared to an FPO. When it comes to an FPO, you already have an idea about the company, the business, management strategy, financials and all other parameters.

Difference between Follow-On Public Offer(FPO) and Initial public offering (IPO):

BASIS FOR COMPARISON IPO FPO
Meaning IPO refers to an offer of securities made to the public for subscription by the company for the first time FPO refers to an offer of securities for subscription to the public by a publicly-traded enterprise
Issuer Unlisted company Listed company
Raising Capital Through the first time from public Through a subsequent public contribution
Risk High Comparatively low
Objective The main objective is raising capital through public investment The main objective is subsequent public investment
Predictability Less predictable More predictable
Profit Higher than FPO Lower than IPO
Types Equity shares and Preferred shares Dilutive offering and Non-Dilutive offering

 

It depends on investors  risk level and goals. Risk levels need to be extremely high to invest in an IPO because you do not have much idea about the company. An FPO is relatively a safer bet for individual investors and new investors. Investing in an IPO requires more research than FPO. You need to understand the company fundamentals. If you are a long term investor, with a good risk appetite and have faith in the company, you can consider investing in an IPO. When it comes to the differences between FPO and IPO, risk and returns are very important components. However, risk and returns are correlated. IPOs have more potential to return more money if the company kicks off to a good start but there are more ‘ifs’ to it. To understand your profile as an investor and then take the decision.

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3 COMMENTS

  1. […] All the business entities need fund flow to finance their day to day operations. Therefore, for raising funds for the business there are two ways i.e. in the form of equity or through debt which represents the borrowed capital of the company. In equity, the entity approaches various individuals to sell its shares at a fixed price and when it is done for the first time it is referred to as Initial Public Offer (IPO). While on the other hand, when the shares are offered for sale for the subsequent public contribution it is referred to as FPO. […]

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