Issuing shares to the general public and investors is one of the most popular methods of raising capital for the firm to fund its expansion, modernisation or growth. By issuing shares to the public, the company parts with a small part of its ownership to the shareholders who purchase and own these shares.
However, a company might need to raise capital from the public multiple times throughout its lifetime. When a private company raises capital by issuing shares to the public for the very first time, this issue of shares is referred to as an Initial Public Offering or an IPO, whereas every subsequent issue of shares is referred as Follow-on Public Offer or an FPO.
IPO – Meaning
An Initial Public Offering or an IPO is the process wherein a private company goes public by offering the sales of a portion of its equity shares to raise capital. By doing so, the company no longer remains a privately-owned business and become a public limited company, also referred to as going public. Post issuance of shares to the public, these shares are freely traded freely on the open markets and stock exchanges, and this is also referred to as the free float. An IPO helps in increasing and diversification of the equity base of the company. Public limited companies also enjoy certain benefits which include attracting and retaining talent, both in the management and employee position though the primary purpose of an IPO is to raise capital for the company.
Some of the steps involved in issuing an IPO are as follows:
- Selection of an Investment Bank
- Pricing the Issue of Shares
- Due Diligence and Regulatory Filings.
- Transition into a Public Limited company
These guidelines are beneficial which must undertake to go public and very much essential for a company to follow before issuing an IPO as well. Now a day’s most companies undertake an IPO with the assistance of an investment banking firm which is acting in the capacity of the underwriter. By this way, every company becomes a renowned company or publicly listed company, and that is why IPO (INITIAL PUBLIC OFFERING) is also known as GOING PUBLIC. It creates multiple financing opportunities like bank loans, convertible debt etc. IPO or Initial Public Offering is the first sale of stock issued by any company to the public.
IPO can increase the company’s business strength and helps for generating revenues which allow making any company renowned in the market, and its market value will be increased a lot. It can offer stock options and shares of stocks which help to stand to make millions the day the company goes public. That is why the balance can be maintained between the stock market and the economy’s health. If the numbers of IPO’s are increasing, it means the economy is up to the mark right now, and the company is growing on its own feet. Along with this process, significant costs are involved which are associated with the process like banking and legal fees etc.
FPO – Meaning
FPO or FOLLOW ON PUBLIC OFFERING is the insurance of shares of investors by which currently exchange the stock market can be traded. It helps to raise additional quality capital in capital markets through an issue of stock. There are two types of FPO or FOLLOW ON PUBLIC OFFERING process. The first one is dilutive to investors, and another one is non-dilutive. By this process, public companies can take the advantages of an FPO through an offer document.
For example, in 2013, FPO has produced $201.7 billion equity raised for companies. These are the popular methods of companies for raising the additional equity capital in capital markets through an issue of stock. But make sure this process is not that much revenue generated process like IPO. It helps to get profit but not as like IPO process.
Now we will discuss what the fundamental differences in between IPO AND FPO are-
- IPO helps to raise funds by listing the company on the share market. But on the other hand, FPO is issued which has listed already on the stock exchange and has gone through issuing IPO’s. This means IPO’s are released when the company is not yet listed on the stock exchange and FPO’s are published after the company has already been listed on the stock exchange.
- IPOs can give more profit rather than FPO’s because IPO’s help generates the revenues and profitability helps to provide the issued securities to more individual investors, make the company more renowned in the market and that is why that company can sell more and more products at their level best.
- IPO’s are less predictable, and FPO’s are more predictable.
- IPO is one type of public investment, and FPO’S means subsequent public contribution.
- IPO is common and preferred everywhere, and FPO’s are dilutive and non-dilutive.
- IPO is largely to fund expansion plans and FPO is may be to reduce stake of existing promoters.
- In this IPO process, shares are listed for the first time, and according to the FPO process, shares have already been listed.
- IPO’s are used by different private companies primarily, and on the other hand, FPO’s are used by various government companies which have helped to reduce stake in every company.
- IPO can involve raising fresh resources, and FPO can merely be a stake sale.
- IPO is a risky investment as a single investor does not predict this process. But the FPO process is not the risky process, and an individual predictor can be predicted as well.
- IPO can generate more marketing value and revenue where FPO is not able to generate that much revenue or marketing as well.
- Any company prepares an IPO for completing money and an FPO for adding to the initial public offerings. These are the reason behind, IPO’s (INITIAL PUBLIC OFFERING) are underpriced which can ensure that issue is subscribed or oversubscribed by any public investor if it is oversubscribed 2 to 3 times that will be considered as GOOD IPO (INITIAL PUBLIC OFFERING).
These are the fundamental difference between IPO and FPO. FPO’s are comparatively far fewer than an IPO, and in the earlier days, we didn’t see too much IPO’s as well on these days.