# What Is a Follow-on Offering (FPO)? Types, Impact, and Examples

## What Is a Follow-On Offering (FPO)?

A follow-on offering (FPO) is a sale of stock shares following a company's [initial public offering](https://www.investopedia.com/terms/i/ipo.asp) (IPO). Companies engage in follow-on offerings to raise capital to pay off debt, invest for growth, or for acquisitions. The two types of follow-on offerings are diluted and non-diluted. Diluted FPOs result in lower [earnings per share](https://www.investopedia.com/terms/e/eps.asp) (EPS) because the number of shares in circulation increases. Non-diluted FPOs result in an unchanged EPS because it involves bringing existing shares to the market. Companies must register FPOs and provide a [prospectus](https://www.investopedia.com/terms/p/prospectus.asp) to regulators.

### Key Takeaways

*   A follow-on offering (FPO) allows a public company to issue additional stock after its initial public offering (IPO).
*   Diluted FPOs increase the number of shares, reducing earnings per share (EPS), while non-diluted FPOs maintain EPS.
*   Companies use FPOs to raise capital for purposes like debt reduction, acquisitions, or refining capital structures.
*   The pricing of FPO shares is often at a discount to the current market price to attract investors.
*   Non-diluted FPOs involve selling existing privately-held shares, benefiting shareholders without changing the company’s EPS.

## Understanding the Mechanics of Follow-on Offerings (FPOs)

An initial public offering (IPO) bases its price on the health and performance of the company, and the price the company hopes to achieve per share during the initial offering. The pricing of a follow-on offering is market-driven. Since the stock is already [publicly-traded](https://www.investopedia.com/terms/p/publiccompany.asp), investors have a chance to value the company before buying.

The price of follow-on shares is usually at a discount to the current, closing market price. Also, FPO buyers need to understand that investment banks directly working on the offering will tend to focus on marketing efforts rather than purely on [valuation](https://www.investopedia.com/terms/v/valuation.asp).

Companies conduct follow-on offerings for various reasons, like to raise capital to pay off debt or make [acquisitions](https://www.investopedia.com/terms/a/acquisition.asp). Investors may also use them to cash out their holdings.

Companies may also use FPOs to [refinance debt](https://www.investopedia.com/articles/personal-finance/091615/difference-between-restructuring-and-refinancing.asp) when interest rates are low. Investors should understand the reasons behind a company's FPO before investing.

## Exploring Types of Follow-on Offerings: Dilutive and Non-Dilutive

A follow-on offering can be either [diluted](https://www.investopedia.com/terms/d/dilution.asp) or non-diluted.

### Diluted Follow-on Offering

A diluted FPO occurs when a company issues more shares to raise funds, which are often used to reduce debt or change the [capital structure](https://www.investopedia.com/terms/c/capitalstructure.asp). As shares increase, EPS decreases. This cash infusion can improve the company's long-term prospects and potentially benefit its shares.

### Non-Diluted Follow-on Offering

Non-diluted follow-on offerings happen when holders of existing, privately-held shares bring previously issued shares to the public market for sale. Cash proceeds from non-diluted sales go directly to the [shareholders](https://www.investopedia.com/terms/s/shareholder.asp) placing the stock into the open market.

In many cases, these shareholders are company founders, members of the board of directors, or pre-IPO investors. Since no new shares are issued, the company's EPS remains unchanged. Non-diluted follow-on offerings are also called secondary market offerings.

## Real-World Examples of Follow-on Offerings (FPOs)

A well-publicized follow-on offering was that of Alphabet Inc. subsidiary Google ([GOOG](https://www.investopedia.com/markets/quote?tvwidgetsymbol=goog)), which conducted a follow-on offering in 2005. The Mountain View company's initial public offering (IPO) was conducted in 2004 using the [Dutch Auction](https://www.investopedia.com/terms/d/dutchauction.asp) method. It raised approximately $1.67 billion at a price of $85 per share, the lower end of its estimates. In contrast, the follow-on offering conducted in 2005 raised more than $4 billion at $295, the company's share price a year later.

In early 2022, AFC Gamma, a commercial real estate company that makes loans to companies in [the cannabis industry](https://www.investopedia.com/important-terminology-related-to-the-cannabis-industry-4590098), announced that it would be conducting a follow-on offering. The company would look to offer 3 million shares of its [common stock](https://www.investopedia.com/terms/c/commonstock.asp) at a price of $20.50 per share. The underwriters of the offering have a 30-day period in which they can opt to buy an additional 450,000 shares.

The company estimates gross proceeds from the sale to be approximately $61.5 million. The proceeds from the sale of additional common stock will be to fund loans made to companies in the industry and for [working capital](https://www.investopedia.com/terms/w/workingcapital.asp) needs.

## Is a Follow-on Offering a Primary or Secondary Offering?

There are two types of follow-on offerings: primary and secondary. A primary follow-on offering is a direct sale of a company's shares from the company that are newly issued. A secondary follow-on offering is a public resale of existing shares from current stockholders. A primary offering is dilutive while [a secondary offering](https://www.investopedia.com/ask/answers/07/secondary_offering.asp) is non-dilutive.

## What Is the Difference Between a Follow-on Offering and an Initial Public Offering?

An initial public offering (IPO) is when a private company goes public, listing its shares on an exchange for the first time for the public to purchase. A follow-on offering is when an already existing public company (one that has completed an IPO) sells more shares to the public to raise additional capital.

## What Is Follow-on Financing?

Follow-on financing is when a startup that has already raised capital raises additional capital through another round of funding. This is in the private space before the start up has gone public.

## The Bottom Line

A follow-on offering (FPO) is the issuance of stock shares after an IPO. It can be a useful way for companies to raise additional capital. FPOs can be diluted or non-diluted. The former decreases EPS because new shares are issued while the latter has no impact on EPS because existing shares are sold. Companies may utilize FPOs to finance growth, pay off debt, or allow existing shareholders to take profits without affecting the EPS. Prospective investors should understand the motivations behind an FPO before investing and consider the implications for company valuation and stock performance.

> **Article Sources**
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> 1.  CFO. "[Google Secondary Offering Raises $4B+](https://www.cfo.com/banking-capital-markets/2005/09/google-secondary-offering-raises-4b/)."
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> 2.  CNET. "[Learning from Google's IPO](https://www.cnet.com/tech/tech-industry/learning-from-googles-ipo/)."
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> 3.  TechCrunch. "[A Look Back in IPO: Google, the Profit Machine](https://techcrunch.com/2017/07/31/a-look-back-in-ipo-google-the-profit-machine/)."
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> 4.  Globenewswire. "[AFC Gamma, Inc., Prices Common Stock Offering](https://www.globenewswire.com/news-release/2022/01/06/2362096/0/en/AFC-Gamma-Inc-Prices-Common-Stock-Offering.html)."