Follow on Public Offering

What is a Follow on Public Offering?

Follow on Public Offering (FPO), also known as a seasoned equity offering, is the method to issue raise capital by offering additional equity or preference shares after raising funds through Initial Public Offer.

Pre-Requisites of an FPO

There are certain prerequisites for the new offering to be categorized as a follow-on Public offering; one such prerequisite is that it should be offered to the general public, i.e. issued in the open market, because if offered to existing shareholders it is known as a Rights issue or a Bonus issue, as the case may be, and if offered to a select group of investors, it is known as a private placement.

Another point that should be kept in mind is that it is an issue through which the company raises money and not a trade made between the investors on a stock exchange. IPO or an FPO takes place in the primary market, while the stock exchange forms the secondary market.


  • PolarityTE (NASDAQ:COOL) Issued a follow on public offering that closed on June 7, 2018. This FPO was for approx. $55M of equity shares. The proceeds were to be used for R&D, commercialization, and registration of products among many other reasons specified in the SEC filing. Cantor Fitzgerald was the sole bookrunner for PolarityTE offering.
  • The Trade Desk, Inc. (NASDAQ:TTD) On May 30, 2017, completed the closing of a follow-on offering of 4,316,452 shares by selling shares of certain existing stockholders, to the public and therefore TDD did not receive any proceeds from the offering. This is more of a secondary offering.
  • Huya, a Chinese gaming company, on April 9, 2019, launched a $343m follow on offering. This had an over-allotment procedure, also known as a greenshoe.

Types of Follow on Public Offering

When the company raises capital by issuing completely new shares, the number of shares issued increases; however, the amount of earnings available for shareholders remains the same. This leads to lower earnings per share (EPS). Such an offering is called a dilutive FPO, as it leads to a dilution of the EPS.

Whereas, when the company releases the shares previously owned by a promoter group or privately held to the general public, the number of shares may not increase, and therefore the EPS remains the same. Such an issue is considered to be non-dilutive. If the number of shares increases even in the case of existing shares issued to the public, then the issue will again become dilutive.

Reasons for Follow on Public Offering

  • A company might wish to pay off an existing debt because debt requires regular payments of interest, whether or not the company makes a profit.
  • Also, at times, the company prefers equity issues over debt for future expansions or the interest rate prevalent in the market is not favourable for the company.
  • At times, the debt holders put highly restrictive covenants on the risk-taking activities of the company and exercise a high degree of control. If such control is not welcomed by the company as its vision gets restricted, it may go for an FPO and use the proceeds to reduce debt levels and gain greater control.
  • At times companies are not able to raise enough capital through their IPO and therefore feel the need to go for an FPO.

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