Legal Definitions - follow-on offering

A follow-on offering, sometimes referred to as a follow-on public offer (FPO), occurs when a company that is already publicly traded sells additional shares to the public. This takes place after the company has completed its initial public offering (IPO), which was its very first sale of shares to the public.

Companies typically conduct a follow-on offering for two main reasons:

• To raise more capital for various purposes, such as funding expansion, paying down debt, or making acquisitions.
• To allow existing large shareholders, like early investors or company founders, to sell some of their shares to the public.

Follow-on offerings can be either dilutive or non-dilutive:

• An offering is dilutive if the company issues brand new shares, thereby increasing the total number of shares outstanding. This means each existing share now represents a smaller percentage of the company's overall ownership and future earnings.
• An offering is non-dilutive if the company sells shares it already owns (e.g., shares it previously bought back and held as treasury stock), or if existing shareholders sell their own shares. In these cases, the total number of shares outstanding in the market does not increase, so existing shareholders' ownership percentage is not diluted.

Examples of Follow-on Offerings:

• Example 1: Dilutive Offering for Company Expansion
  "BioPharm Innovations," a publicly traded pharmaceutical company, successfully launched its first drug five years ago. Now, to fund advanced research for two new potential blockbuster drugs and build a state-of-the-art manufacturing facility, BioPharm Innovations decides to issue 15 million new shares to the public. This will raise significant capital for their ambitious projects.

  How this illustrates the term: This is a follow-on offering because BioPharm Innovations is already a public company selling additional shares after its IPO. It is a dilutive offering because the company is creating and selling brand new shares, which increases the total number of shares outstanding and reduces the proportional ownership of existing shareholders.

• Example 2: Non-Dilutive Offering for Shareholder Liquidity
  "Global Tech Solutions," a prominent software firm, has been publicly traded for over a decade. Its original venture capital investors, who have held a substantial stake since the company's early days, decide it's time to realize some of their investment gains. They arrange for a follow-on offering where their existing shares are sold directly to new investors in the public market.

  How this illustrates the term: This is a follow-on offering because it occurs after Global Tech Solutions is already public. It is a non-dilutive offering because no new shares are created by the company; instead, existing shares held by the venture capital firm are being transferred to new owners in the public market, without changing the total number of shares outstanding.

• Example 3: Non-Dilutive Offering from Treasury Stock
  "Retail Giant Inc.," a large department store chain, went public many decades ago. Several years ago, the company bought back a significant number of its own shares from the open market, holding them as "treasury stock." Now, Retail Giant Inc. needs capital to invest in a major e-commerce platform upgrade but wants to avoid diluting its current shareholders. It decides to sell a portion of its treasury stock back to the public.

  How this illustrates the term: This is a follow-on offering because Retail Giant Inc. is an existing public company selling shares. It is a non-dilutive offering because the company is selling shares it already owned (treasury stock) rather than issuing new ones. The total number of shares outstanding in the market does not increase, so existing shareholders' ownership percentage remains unchanged.