Difference Between IPO and FPO – Is there an Actual Difference?

Initial Public Offering (IPO) and Follow-on Public Offering (FPO) are two terms that are commonly used in the financial world, and they are often used interchangeably.

However, there is a significant difference between the two. An IPO is a process by which a company goes public for the first time, whereas an FPO is the process of issuing additional shares by an already listed company. In this article, we will discuss the differences between IPO and FPO in detail.

IPO vs FPO: Understanding the Differences for Investors and Companies

Overview of IPO

An IPO, or Initial Public Offering, is a process by which a company raises capital by selling shares of its stock to the public for the first time. It is a major event for any company, as it allows it to raise significant capital, increase its visibility, and provide liquidity for its shareholders.

In an IPO, the company typically hires an investment bank to act as an underwriter and help with the sale of the shares. The underwriter assists the company in determining the appropriate price for the shares, and also helps to market and distribute the shares to potential investors.

The process of going public involves significant regulatory requirements and can take several months to complete. The company must file a registration statement with the Securities and Exchange Commission (SEC), which includes detailed information about the company’s financials, operations, and management.

The SEC reviews the registration statement to ensure that it complies with all of the disclosure requirements and provides potential investors with sufficient information to make informed investment decisions.

Once the registration statement is approved, the company can begin the process of marketing and selling the shares. The underwriter will typically work with a syndicate of other investment banks to market and distribute the shares to potential investors.

The price of the shares is typically determined through a process of book-building, in which the underwriter and syndicate members solicit indications of interest from potential investors.

On the day of the IPO, the shares are typically listed on a stock exchange, and trading begins. The price of the shares can fluctuate significantly in the first few days of trading, as the market reacts to the new listing.

Overview of FPO

A Follow-on Public Offering (FPO) is a process by which a company issues additional shares of stock to the public after it has already gone public through an IPO.

An FPO can be used by a company to raise additional capital, or to provide liquidity for existing shareholders.

The process of conducting an FPO is similar to that of an IPO, with the company filing a registration statement with the SEC and working with an underwriter to market and distribute the shares.

However, because the company is already publicly traded, there are fewer regulatory requirements and the process can be completed more quickly than an IPO.

There are two types of FPOs: dilutive and non-dilutive. In a dilutive FPO, the company issues new shares to the public, which can dilute the ownership of existing shareholders.

In a non-dilutive FPO, the company sells shares that are already held by existing shareholders, without issuing any new shares. Non-dilutive FPOs are also known as secondary offerings.

Differences between IPO and FPO

While IPOs and FPOs share some similarities, there are significant differences between the two. The following are some of the key differences:

1. Purpose

The main difference between an IPO and an FPO is the purpose for which the shares are being sold.

An IPO is used to raise capital for the first time, while an FPO is used to raise additional capital or provide liquidity for existing shareholders.

2. Regulatory requirements

The regulatory requirements for an IPO are much more extensive than those for an FPO. In an IPO, the company must file a detailed registration statement with the SEC, which includes information about the company’s financials, operations, management, and risks.

The SEC then reviews the registration statement to ensure that it complies with all of the disclosure requirements and provides potential investors with sufficient information to make informed investment decisions.

In an FPO, the regulatory requirements are less extensive, as the company is already publicly traded and has already gone through the rigorous process of an IPO.

The company still needs to file a registration statement with the SEC, but the process can be completed more quickly and with fewer requirements.

3. Pricing

The pricing of shares in an IPO is typically more difficult to determine than in an FPO. In an IPO, the company has no established trading history, and the market must rely on the information provided in the registration statement to determine the appropriate price for the shares. 

This can lead to significant volatility in the price of the shares in the first few days of trading.

In an FPO, the company’s shares are already publicly traded, and there is an established trading history for the stock.

This makes it easier to determine the appropriate price for the shares, and reduces the potential for significant volatility.

4. Investor interest

Investor interest in an IPO is typically higher than in an FPO. An IPO represents the first opportunity for investors to buy shares in a company that has previously been private, and there is often significant excitement surrounding the offering.

This can lead to higher demand for the shares, and can result in a higher price for the shares in the initial offering.

In an FPO, the company’s shares are already publicly traded, and there may be less excitement surrounding the offering. This can result in lower demand for the shares, and can result in a lower price for the shares in the offering.

5. Use of proceeds

The use of proceeds from an IPO and an FPO can be different. In an IPO, the company typically uses the proceeds to fund growth initiatives, such as expanding operations, investing in research and development, or making acquisitions.

In an FPO, the proceeds may be used to fund similar initiatives, or may be used to pay down debt, repurchase shares, or provide liquidity for existing shareholders.

Conclusion

In conclusion, while IPOs and FPOs share some similarities, there are significant differences between the two. An IPO is a process by which a company goes public for the first time, and is used to raise capital for the first time.

An FPO is a process by which a company issues additional shares of stock to the public after it has already gone public through an IPO, and is used to raise additional capital or provide liquidity for existing shareholders.

The regulatory requirements for an IPO are much more extensive than those for an FPO, and the pricing of shares in an IPO is typically more difficult to determine than in an FPO.

Investor interest in an IPO is typically higher than in an FPO, and the use of proceeds from an IPO and an FPO can be different. Understanding these differences is important for investors who are considering investing in IPOs or FPOs, and for companies who are considering going public or issuing additional shares.