A follow-on offering, also known as a follow-on public offering (FPO), is a type of

public offering A public offering is the offering of securities of a company or a similar corporation to the public. Generally, the securities are to be publicly listed. In most jurisdictions, a public offering requires the issuing company to publish a prospectu ...

stock Stocks (also capital stock, or sometimes interchangeably, shares) consist of all the Share (finance), shares by which ownership of a corporation or company is divided. A single share of the stock means fractional ownership of the corporatio ...

that occurs subsequent to the company's

initial public offering An initial public offering (IPO) or stock launch is a public offering in which shares of a company are sold to institutional investors and usually also to retail (individual) investors. An IPO is typically underwritten by one or more investm ...

(IPO). A follow-on offering can be categorised as dilutive or non-dilutive. In the case of the dilutive offering, the company's

board of directors A board of directors is a governing body that supervises the activities of a business, a nonprofit organization, or a government agency. The powers, duties, and responsibilities of a board of directors are determined by government regulatio ...

agrees to increase the share float for the purpose of selling more equity in the company. This new inflow of cash might be used to pay off some

debt Debt is an obligation that requires one party, the debtor, to pay money Loan, borrowed or otherwise withheld from another party, the creditor. Debt may be owed by a sovereign state or country, local government, company, or an individual. Co ...

or used for needed company expansion. When new shares are created and then sold by the company, the number of

shares outstanding Shares outstanding are all the shares of a corporation that have been authorized, issued and purchased by investors and are held by them. They are distinguished from treasury shares, which are shares held by the corporation itself, thus representi ...

increases and this causes dilution of the

earnings per share Earnings per share (EPS) is the monetary value of earnings per outstanding share of common stock for a company during a defined accounting period, period of time, often a year. It is a key measure of corporate profitability, focusing on the inte ...

. Usually the gain of cash inflow from the sale is strategic and is considered positive for the longer-term goals of the company and its shareholders. Some owners of the stock however may not view the event as favorably over a more short term valuation horizon. One example of a type of follow-on offering is an at-the-market offering (ATM offering), which is sometimes called a controlled equity distribution. In an ATM offering, exchange-listed companies incrementally sell newly issued shares into the secondary trading market through a designated broker-dealer at prevailing market prices. The issuing company is able to raise capital on an as-needed basis with the option to refrain from offering shares if unsatisfied with the available price on a particular day. The non-dilutive type of follow-on offering is when privately held shares are offered for sale by company directors or other insiders (such as venture capitalists) who may be looking to diversify their holdings. Because no new shares are created, the offering is not dilutive to existing shareholders, but the proceeds from the sale do not benefit the company in any way. Usually however, the increase in available shares allows more institutions to take non-trivial positions in the company. A non-dilutive offering is therefore a type of a secondary market offering. As with an IPO, the

investment bank Investment is traditionally defined as the "commitment of resources into something expected to gain value over time". If an investment involves money, then it can be defined as a "commitment of money to receive more money later". From a broade ...

s who are serving as underwriters of the follow-on offering will often be offered the use of a greenshoe or over-allotment option by the selling company.

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{{Corporate finance and investment banking Corporate finance Initial public offering

See also

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