Difference Between IPO and FPO
- 28 Jun 2024
- By: BlinkX Research Team
An Initial Public Offering (IPO) is the method by which a privately held company collects funds by introducing its shares to the public for the first time. On the other hand, a Follow-on Public Offering (FPO) is the procedure by which a company already listed on the stock exchange secures extra capital by presenting additional shares to the public. Both IPO and FPO serve as crucial tools for companies to secure capital for their development and expansion, enhance visibility and liquidity, and provide an exit strategy for initial investors and founders. In this article, you can understand what is IPO and FPO along with the difference between fpo and ipo
What is an IPO?
Through an initial public offering (IPO) a private company releases its shares to the public for the first time to raise money. This transition from private to public can be a significant moment for private investors to profit, usually with a share premium and it also lets the public get in on the investment opportunity. During an IPO, a private company essentially goes from being privately owned to having its shares available for anyone to buy on the stock market. This move is a big deal because it helps the company raise funds from the public, and it can also be a win for early investors who might see the value of their shares increase.
Table of Content
- What is an IPO?
- What is FPO?
- Key Differences Between IPO vs FPO
- Understanding IPO Process
- Understanding FPO Process
- What does IPO Indicate for Companies?
- What does FPO Indicate for Companies?
What is FPO?
FPO, or Follow-on Public Offer, is a process whereby a company already listed on the stock exchange issues additional shares, either to existing shareholders or new investors. This differs from an IPO, where a company issues its shares to the public for the first time to collect funds for business expansion. Companies opt for an FPO to broaden their equity base, typically after initiating the IPO process, making their shares accessible to the public and securing additional capital for business purposes.
Key Differences Between IPO vs FPO
Understanding IPO and FPO differences is crucial to make informed investment decisions. Below are a few difference between IPO and FPO presented in a table.
Particulars | IPO | FPO |
| Meaning | An IPO is the initial stage of a company's public offering. | It is a strategy where a publicly listed company issues more shares to raise additional capital. |
| Company | IPO shares are issued by privately held companies | Issued by publicly traded companies |
| Information availability | The company’s information is not easily available | The company’s information is available and can be accessed by anyone. |
| Underwriting | The IPO process always involves underwriting by investment banks | Generally, underwriting is not involved. |
| Regulatory Requirements | The IPO process has strict regulatory scrutiny and is subject to disclosures | Regulatory requirements are less stringent |
| Price Determination | The offer price is determined by the company along with the lead managers | The equity shares are usually offered at the current market price or at a slight discount to the current market price |
| Potential for higher returns | High potential for capital appreciation | Low potential for capital appreciation |
| Risk | Generally, carries a higher risk | Comparatively carries a lower risk |
Understanding IPO Process
After understanding the difference between IPO and FPO, here is the IPO process which typically involves the following stages:
Preparation
The Preparation Stage of the Initial Public Offering (IPO) process is a crucial phase in which a company undertakes several key activities to prepare itself for going public. This stage involves thorough assessments, planning, and compliance checks to ensure that the company is well-prepared for the transition from private to public ownership.
Roadmap
Companies conduct roadshows to promote the IPO to institutional investors, analysts, and potential retail investors. These events provide an opportunity for the company's management team to present their business model, growth strategies, and financial outlook.
Book Building
Investment banks gauge investor interest through a process called book building, where they collect bids from potential investors at different price points. This helps determine the final offering price.
Listing
Once the offering price is set and the required regulatory approvals are obtained, the company lists its shares on a stock exchange, making them available for public trading.
Post IPO
After the IPO is completed, the company becomes a publicly traded entity, subject to stringent regulatory reporting requirements. The stock's price is determined by market demand and supply dynamics.
Understanding FPO Process
The FPO process typically involves the following stages:
Decision and Regulatory Approval
The company's board of directors decides on the need for additional capital and obtains necessary approvals from regulatory bodies and stock exchanges.
Disclosure
Similar to the IPO process, the company must provide detailed information about its financials, operations, and future plans in a prospectus for potential investors.
Pricing
The pricing of shares in an FPO is determined through book building, where the company and its underwriters assess investor demand and set an offering price.
Subscription and Listing
Once the offering price is established and regulatory approvals are secured, the additional shares are offered to the public. Following the subscription period, the new shares are listed on the stock exchange.
Post FPO
After the FPO, the company continues to be publicly traded, with the additional shares contributing to the overall market capitalization. Investors who purchase these new shares become shareholders of the company.
What does IPO Indicate for Companies?
An Initial Public Offering (IPO) signifies a transformative milestone for companies as they transition from private ownership to becoming publicly traded entities on the stock market. This strategic move allows companies to raise capital by offering shares to the public, facilitating expansion, innovation, and debt reduction. The IPO process not only infuses funds but also enhances a company's visibility, credibility and market recognition. However, it subjects the company to increased regulatory scrutiny and demands a higher level of transparency.
What does FPO Indicate for Companies?
A Follow-On Public Offering (FPO) is a significant move for companies already listed on the stock exchange. It indicates a desire for additional capital, often to fund expansion, repay debts, or pursue strategic initiatives. Unlike an Initial Public Offering (IPO), which marks a company's first entry into the stock market, an FPO involves the issuance of new shares by a publicly traded company. Companies opt for FPOs when they require additional funding beyond their initial public listing. The decision to pursue an FPO reflects confidence in the company's growth prospects and a strategic approach to capitalise on market opportunities. From the above article IPO vs FPO, you can have a better idea of what is FPO and IPO along with their differences.
Conclusion
Investors often choose between IPO vs FPO in the stock market, as they significantly influence their investment strategies. IPOs involve public share issuance, while FPOs target existing investors. IPOs mark a company's initial entry into the public market, while FPOs enable already-listed companies to raise additional capital. The timing, purpose, and implications of these offerings vary, reflecting different stages of a company's public journey. The BlinkX trading app offers real-time market insights, a user-friendly interface, and advanced tools to help investors make informed investment decisions and seize opportunities.
