What is a FPO and how is it different from an IPO?

FPO stands for Follow-on Public Offer, which is another term for a secondary offering. It refers to a situation where a company that is already publicly traded issues additional shares of stock to the public.

An IPO, or Initial Public Offer, is the process by which a privately held company raises capital by issuing and selling shares of stock to the public for the first time.

In summary, an IPO is the first time a company is going public and FPO is when a company that already went public is offering more shares to the public.

Why does a company go for a FPO? 

A company may decide to do a Follow-on Public Offer for a variety of reasons, including:

  1. To raise additional capital: A company may need to raise additional funds for expansion, acquisitions, or to repay debt. An FPO allows the company to raise money from the public without having to give up control or ownership.
  2. To increase liquidity: An FPO can increase the trading volume of a company’s stock, making it easier for shareholders to buy and sell shares on the stock market.
  3. To improve the company’s valuation: By issuing more shares, a company can increase the number of shares outstanding, which can lead to a higher market capitalization and a higher valuation of the company.
  4. To dilute the shareholding of the existing shareholders: When a company issues more shares, it leads to dilution of shareholding of the existing shareholders. This can be beneficial in cases where the company wants to bring in new shareholders and expand the shareholder base.
  5. To meet regulatory requirement: Some countries have regulations that require a certain percentage of shares to be held by the public. In such cases, an FPO can be used to meet those requirements.