how a follow on offering fpo works
an initial public offering ipo bases its price on the health and performance of the company and the price the company hopes to achieve per share during the initial offering the pricing of a follow on offering is market driven since the stock is already publicly traded investors have a chance to value the company before buying the price of follow on shares is usually at a discount to the current closing market price also fpo buyers need to understand that investment banks directly working on the offering will tend to focus on marketing efforts rather than purely on valuation companies perform follow on offerings for a wide variety of reasons in some cases the company might simply need to raise capital to finance its debt or make acquisitions in others the company s investors might be interested in an offering to cash out of their holdings some companies may also conduct follow on offerings in order to raise capital to refinance debt during times of low interest rates investors should be cognizant of the reasons that a company has for a follow on offering before putting their money into it types of follow on offerings fpos a follow on offering can be either diluted or non diluted diluted follow on offerings happen when a company issues additional shares to raise funding and offer those shares to the public market as the number of shares increases the earnings per share eps decreases the funds raised during an fpo are most frequently allocated to reduce debt or change a company s capital structure the infusion of cash is good for the long term outlook of the company and thus it is also good for its shares non diluted follow on offerings happen when holders of existing privately held shares bring previously issued shares to the public market for sale cash proceeds from non diluted sales go directly to the shareholders placing the stock into the open market in many cases these shareholders are company founders members of the board of directors or pre ipo investors since no new shares are issued the company s eps remains unchanged non diluted follow on offerings are also called secondary market offerings example of a follow on offering fpo a well publicized follow on offering was that of alphabet inc subsidiary google goog which conducted a follow on offering in 2005 the mountain view company s initial public offering ipo was conducted in 2004 using the dutch auction method it raised approximately 1 67 billion at a price of 85 per share the lower end of its estimates in contrast the follow on offering conducted in 2005 raised more than 4 billion at 295 the company s share price a year later 123in early 2022 afc gamma a commercial real estate company that makes loans to companies in the cannabis industry announced that it would be conducting a follow on offering the company would look to offer 3 million shares of its common stock at a price of 20 50 per share the underwriters of the offering have a 30 day period in which they can opt to buy an additional 450 000 shares 4the company estimates gross proceeds from the sale to be approximately 61 5 million the proceeds from the sale of additional common stock will be to fund loans made to companies in the industry and for working capital needs 4