Written by Upstox Desk
9 min read | Updated on July 31, 2025, 18:25 IST
Understanding How a Company Goes Public: IPO
What is a Follow-On Public Offering?
Why do companies issue Follow-On Public Offering?
Types of FPOs
Alternatives to FPO
Difference: IPO vs FPO
Examples of Follow-On Public Offering
Why invest in Follow-On Public Offering?
How to apply for an FPO?
Conclusion
Frequently Asked Questions (FAQS)
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It is a common belief that a company only cultivates good relations with investment bankers when it is on the growth track of going public. Once it goes public, the services of investment banks for the company become limited. However, that is not the case. Many publicly listed companies avail the services of investment banks to utilize Follow-On Public Offerings (FPO) to raise more funds and reduce debt.
Here, in this article, we learn about FPOs, the difference between FPOs and IPOs, and its different aspects.
When a company goes public, it usually refers to its initial public offering. After issuing an IPO, a company becomes publicly traded and owned. Companies decide to go public to extend their reach and generate more capital. Venture capitalists who have invested in a company can also use it as an exit strategy.
Investment banks are the first step toward going public, and they take up the task of underwriting. They decide the price and number of publicly listed shares under due diligence. Undergoing public, privately owned shares are converted to public shares.
A Follow-On Offering comes into play when a public company issues additional shares following its initial public offering. This occurs when a company decides to raise more money by issuing more shares to fund projects, settle debt, or make acquisitions.
The shares that a corporation in a follow-on offering is distributing must be made available to everyone, not just current shareholders. Additionally, the business must be publicly traded on a stock exchange and have previously offered an IPO.
An IPO is different from an Follow-On Public Offering because a company lists for the first time using the IPO process. A follow-on public offer is used when a firm seeks to raise money a couple more times after becoming public. Technically, a company could use a follow-on public offer to raise capital several times as desired.
Although FPO does not have much documentation and regulatory scrutiny, the company needs to provide a prospectus for potential investors. However, if the business re-enters the market with multiple offerings, it faces strong criticism. Subsequently, the shareholders are concerned about why the company needs more money.
A company might seek to generate new equity for several reasons, such as:
A corporation might undertake its follow-on public offering in one of two methods.
When a company issues more shares to raise capital and sells them on the open market, it conducts a diluted follow-on offering. The Earnings Per Share (EPS) drops as the number of shares rises. The revenue raised with this type of FPO is used to reduce debt and change the company’s capital structure. A recent example of dilutive Follow-On Public Offering in the Indian share market is Indian Telecom Industries Ltd. (ITI).
It is a Bangalore-based public company that announced additional Rs. 18 crores of fresh shares in January 2020 at Rs. 71 -Rs. 77 price to dilute the government stakes in the company, but it was withdrawn in February 2020.
Here, the addition of revenue is beneficial to the company’s long-term prospects, which helps its shares as well.
Stakeholders of existing shares can sell previously issued shares on the open market in a non-diluted follow-on offering. When stock is sold as a non-diluted Follow-On Public Offering, the cash revenues are given to the shareholders who sold the stock.
This type of FPO doesn’t bring much revenue gain but rather brings changes in stakeholders’ ownership patterns. These stakeholders frequently serve as the company’s founders, board of directors members, or pre-IPO investors. Since there is no fresh issue of stocks, earnings per share remain the same.
An Follow-On Public Offering is not the only way to generate capital; borrowing—either from a bank or by issuing bonds—is another way for businesses to raise additional capital. Borrowing has some advantages and disadvantages as compared to issuing fresh shares. Borrowing has the benefit of not diluting the company’s existing shares, which benefits existing shareholders.
The issuing company can raise money as needed by using an at-the-market (ATM) offering. The company may choose not to offer shares if it is unhappy with the price at which they can be purchased on a particular day. Because ATM offerings can sell shares to the secondary trading market at the going rate, they are sometimes referred to as managed equity distributions.
FPO | IPO |
Second or subsequent public issue of shares of a publicly traded firm | First public issue of shares of a private company |
Tries to raise money through public investment | Tries to attract additional public investment |
Typically, it is less risky as investors are aware of the company as it is already listed on a stock exchange | Typically, it is riskier since the investor is unaware of potential future business developments |
Tends to shift with market trends, and changes in the number of shares | Has a fixed listing price range |
Follow-on public offering needs investors to do thorough research on the company and its track record, just like any other investment. Investing in FPO suits investors with a good knowledge of risk and makes it much easier to conduct research. Moreover, this enables investors to purchase company shares at a discount.
The procedure for applying for it is the same as for an IPO, by applying under the Retail Individual Investors (RIIs) allocation. Anyone above the age of 18 who has a PAN card and a Demat account can begin trading. Traders can purchase shares of a company on the stock exchange where it is listed through a broker or a bank’s Application Supported by Blocked Account (ASBA) service.
Because you are already familiar with the company and its management, investing in an FPO is less risky than investing in an IPO. For this, you must be aware of how the business is doing financially and on the stock market. When investors buy shares in a FPO at a discount and later sell them for a higher price, they can profit from arbitrage.
Investors who lack the time to thoroughly investigate an IPO can invest in it. Therefore, investing in FPOs has a lot of benefits and minimal risks, given that investors do their research well.
Companies issue FPO to raise money to pay off debt, rebalance capital structure, to fund new projects, acquisitions, and business operations.
Secondary market offering and non-dilutive are the same, where the privately held shares are offered for sale, with no new shares created.
IPO is often riskier than an FPO since retail investors might not be completely informed of the potential future business developments with an IPO.
They are safer investments when it comes to public offerings. Unlike IPO, FPO doesn’t require financial knowledge about investment. Investors are provided with historical data about the company and can research the company’s business growth before investing.
Anyone above the age of 18 with a PAN card and a Demat account is eligible to apply for it.
Share prices and earnings per share decrease in case of dilutive FPO. When it is a non-dilutive offering, the share prices tend to remain the same.
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Upstox Desk
Upstox Desk
Team of expert writers dedicated to providing insightful and comprehensive coverage on stock markets, economic trends, commodities, business developments, and personal finance. With a passion for delivering valuable information, the team strives to keep readers informed about the latest trends and developments in the financial world.
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