Regarding stock investments, distinguishing between an Initial Public Offering (IPO) and a Follow-on Public Offering (FPO) is essential. Both avenues enable companies to raise funds directly from the primary market by offering shares to the public, but their timing and objectives differ:
IPO (Initial Public Offering):
- An IPO signifies a company’s debut in the public markets as it offers shares to the public for the first time, subsequently listing them on stock exchanges.
- Its primary aim is to secure capital for the company’s growth initiatives, expansion endeavours, or other strategic ventures.
- IPOs present an opportunity for investors to purchase shares in a company before it becomes publicly traded.
FPO (Follow-on Public Offering):
- In contrast, an FPO occurs after a company has already gone public and entails issuing additional shares to the public.
- The purpose of an FPO is to raise supplementary capital for the company’s further expansion, debt repayment, or other corporate objectives.
- FPOs can manifest through two approaches: dilutive and non-dilutive.
- Dilutive FPOs involve the issuance of more shares, potentially diluting existing shareholders’ ownership.
- Non-dilutive FPOs involve existing shareholders, like directors or promoters, offering their privately held equity for sale, with the total number of shares remaining constant.
- FPOs offer an avenue for existing shareholders and the company itself to generate additional capital without undergoing the IPO process anew.
In essence, while both IPOs and FPOs involve the sale of shares to the public, an IPO denotes a company’s inaugural public offering. In contrast, an FPO occurs post-initial listing and serves to raise supplementary capital through further share issuance.
