# Follow-on Public Offer (FPO): Definition and How It Works

![Follow-on Public Offer: An issuance of additional shares made by a company after an initial public offering (IPO).](https://www.investopedia.com/thmb/VRJ6gUHdQlBNyfe1hMYLpZ0NySI=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/fpo.asp-final-c9e3b003992643d8905e42802d81254a.png)

*— Investopedia / Laura Porter*

## What Is a Follow-on Public Offer (FPO)?

A follow-on public offer (FPO) is the issuance of new shares by a public company after its [initial public offering (IPO)](https://www.investopedia.com/terms/i/ipo.asp). As such, FPOs mean that additional shares are offered to the public by companies that are already listed on exchanges. Follow-on public offerings, which are also known as [secondary offerings](https://www.investopedia.com/terms/s/secondaryoffering.asp), are generally used by companies to raise additional capital for their growth.

### Key Takeaways

*   A follow-on public offer is the additional issuance of a company’s shares after its initial public offering. 
*   Companies usually announce FPOs to raise equity or reduce debt.
*   The two main types of FPOs are dilutive, meaning new shares are added, and non-dilutive, meaning existing private shares are sold publicly.
*   An at-the-market offering is a type of FPO by which a company can offer secondary public shares on any given day, usually depending on the prevailing market price, to raise capital.

## How Follow-on Public Offers (FPOs) Work

[Public companies](https://www.investopedia.com/terms/p/publiccompany.asp) can complete an FPO by offering additional shares on the open market. They can also take advantage of an FPO through an offer document. FPOs allow publicly traded companies to raise additional capital by issuing and selling new shares via a stock exchange.

Proceeds from the sale go to the company issuing the stock. Similar to an IPO, companies that want to execute a follow-on public offer must fill out [Securities and Exchange Commission (SEC)](https://www.investopedia.com/terms/s/sec.asp) documents.

This capital can be used for different purposes. Among the primary reasons behind any new issuance of stock is to pay off existing debt or fund growth through:

*   [Research and development (R&D)](https://www.investopedia.com/terms/r/randd.asp)
*   Releasing new products and services
*   Targeting new markets

> **Fast Fact**
>
> Unlike an FPO, an IPO occurs when a private company issues shares to the public for the very first time through a stock exchange.

## Types of Follow-on Public Offers (FPOs)

There are two main types of follow-on public offers. Dulutive and non-dilutive.

### Diluted Follow-on Offering

The first type of FPO is [dilutive](https://www.investopedia.com/terms/d/dilution.asp) to investors, as the company’s board of directors agrees to increase the [share float](https://www.investopedia.com/ask/answers/what-is-companys-float/) level or the number of shares available. This kind of follow-on public offering seeks to raise money to reduce debt or expand the business, increasing the number of shares outstanding and decreasing the [earnings per share (EPS)](https://www.investopedia.com/terms/e/eps.asp) decrease.

The funds raised during an FPO are most frequently allocated to reduce debt or change a company’s capital structure. The infusion of cash is good for the long-term outlook of the company, and thus, is also good for its shares.

### Non-Diluted Follow-on Offering

The other type of follow-on public offer is non-dilutive. This approach is useful when directors or substantial shareholders sell off privately held shares. 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.

### At-the-Market (ATM) Offering

An at-the-market (ATM) offering gives the issuing company the ability to raise [capital](https://www.investopedia.com/terms/c/capital.asp) as needed. If the company is not satisfied with the available price of shares on a given day, it can refrain from offering shares.

ATM offerings are sometimes referred to as controlled equity distributions because of their ability to sell shares into the secondary trading market at the current prevailing price.

## Follow-on Public Offerings (FPOs) in the Market

Follow-on offerings are common in the investment world. They provide an easy way for companies to raise equity that can be used for common purposes. [Companies announcing secondary offerings](https://www.investopedia.com/ask/answers/07/secondary_offering.asp) may see their share price fall as a result. Shareholders often react negatively to secondary offerings because they dilute existing shares, and many are introduced below market prices.

Some companies that have completed follow-on public offerings in 2024 include Longboard Pharmaceuticals, with an issuance of 10 million shares valued at $210 million, and Cyngn, with an issuance of 12.42 million shares valued at about $20 million.  

## What Are the Benefits of Follow-on Public Offers?

There are several reasons why a public company will choose to raise more equity. For example, they might use the proceeds to pay off debt and improve their debt-to-value (DTV) ratio, or they can use the funds to improve the company’s growth by financing new projects.

## What Are the Advantages of At-the-Market Offerings?

At-the-market offerings have several advantages, including minimal market impact. Businesses can raise capital quickly without having to announce the offering. ATM offerings are also typically sold for less than traditional follow-on offerings, and they require minimal management involvement.  

## What Are the Disadvantages of ATM Offerings?

ATM offerings tend to be smaller than traditional follow-on offerings, so if a business is looking to raise a large amount of capital, this may not be the best method. In addition, the price may fluctuate depending on the market.

## The Bottom Line

An FPO is typically done when the company wants to fund new projects or expansions, pay off debt, or increase its working capital. There are two main types of FPOs, dilutive and non-dilutive. The shares are offered at a fixed price to the public through a book-building process, with the proceeds going directly to the company.

Existing shareholders may also participate in the FPO; either by purchasing additional shares or selling some of their existing ones. FPOs are a way for companies to tap into the capital markets and raise additional funds without taking on debt.

> **Article Sources**
>
> 1.  Latham & Watkins. "[Latham & Watkins Advises on Longboard Pharmaceuticals’ Upsized Public Offering of Common Stock](https://www.lw.com/en/news/latham-watkins-advises-on-longboard-pharmaceuticals-upsized-public-offering-of-common-stock)."
>     
> 2.  Cyngyn. "[Cyngn Announces Pricing of $20.0 Million Follow On Offering Priced At-the-Market](https://www.cyngn.com/pr/cyngn-announces-pricing-of-20.0-million-follow-on-offering-priced-at-the-market)."