Understanding the Difference Between IPO and FPO
For companies wanting to raise capital, going public is a common option. This is where the company’s ownership and shares are offered to the public through an initial public offering (IPO) or a follow-on public offering (FPO). While both options aim at raising capital for the company, several differences set them apart.
What is an IPO?
An IPO is the first offering of a company’s shares to the public. It is the process of taking a private company public, where the ownership is shared with the public. The shares are sold at a fixed price, and the demand of the shares determines the price the company eventually gets. The objective is to raise capital to fund growth operations and increase the market value of the company. Through an IPO, companies can also establish brand exposure, enhance the liquidity of the company’s shares, and offer employees shares in the company.
What is an FPO?
An FPO is also referred to as a secondary market offering, where a company that is already public looks to issue new shares to raise additional capital. The company uses the funds raised to pay down debt, fund new projects or expansion, and invest in future growth. Unlike an IPO, where there is an element of uncertainty over share pricing, FPO pricing is determined by the prevailing market conditions, and the shares sell at the prevailing market price.
The Key Differences between IPO and FPO
The main difference between the two types of public offerings is the timing of when the shares become available for sale. An IPO happens when a company decides to go public for the first time, and the shares are offered at a predetermined price. In contrast, an FPO occurs when a public company looks to raise additional capital, and the shares are sold at the prevailing market price.
Additionally, an FPO is often quicker than an IPO, as the company is already public and the documentation and regulatory hurdles are already addressed. However, an FPO may trigger a decline in the stock price, which means that investors may end up buying shares at a price that falls below the average investor optimism.
In summary, both IPOs and FPOs are viable options for companies seeking to raise capital. The decision to go public, either by an IPO or FPO, depends on the company’s financial standing, plans for capital investment, and market conditions. Therefore, before deciding on the type of public offering, companies need to consider the advantages and disadvantage of each public offering method.
Table difference between ipo and fpo
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| IPO (Initial Public Offering) | FPO (Follow-on Public Offer) |
| IPO is the first time a company seeks to raise funds by offering shares to the public. | FPO is an offering of shares to the public by a company that has already gone public. |
| The company undergoing an IPO is a private company that is entering the public market for the first time. | The company undergoing an FPO is already a public company that is offering additional shares to the public.|
| The purpose of an IPO is to raise capital for the company’s expansion, acquisitions, and other corporate purposes. | The purpose of an FPO is to raise additional capital for the public company. |
| The process of an IPO is complicated and lengthy, including extensive regulatory requirements and filings. | The process of an FPO is less complex, as the company has already gone through the regulatory process. |
| IPO shares are priced based on the company’s estimated value, and the price is often higher than the company expects. | FPO shares are priced based on the existing market price of the company’s shares. |
| In an IPO, the company usually sells a portion of its ownership to the public, which dilutes the ownership of existing shareholders. | In an FPO, the company is selling additional shares, which does not dilute the ownership of existing shareholders. |