IPO Vs. FPO: What Is The Difference?
INVESTOPAPER
What Is IPO?
IPO stands for “Initial Public Offering.” It is the process by which a company raises capital by selling shares of its stock to the public for the first time. In an IPO, the company typically hires an investment bank or group of banks to underwrite the offering and help determine the price at which the shares will be sold to investors.
The purpose of an IPO is to allow the company to raise capital from a wider pool of investors than would be possible through private funding. It also allows the company’s existing shareholders, such as its founders, employees, and early investors, to cash out some of their holdings and potentially realize a profit.
After the IPO, the company’s shares will be traded on a public stock exchange, where their value will be determined by supply and demand in the market. The company will also be subject to additional regulatory and reporting requirements, such as regular financial reporting and disclosure of material information to the public.
What Is FPO?
FPO stands for “Follow-on Public Offering.” It is a type of securities offering in which a company that is already publicly traded issues additional shares of stock to the public. In contrast to an IPO, which is the first time a company’s shares are sold to the public, an FPO occurs after a company has already completed an initial public offering.
Companies typically pursue an FPO to raise additional capital for a variety of purposes, such as financing acquisitions, expanding operations, or paying off debt. FPOs may also be used by existing shareholders, such as early investors or employees, to sell some of their shares and realize a profit.
Like an IPO, an FPO is typically underwritten by investment banks, which help determine the price at which the shares will be sold and facilitate the sale to investors. The company’s shares will continue to be traded on a public stock exchange following the FPO.
Difference Between IPO and FPO
The main difference between an IPO and an FPO is that an IPO is the first time a company issues shares to the public, while an FPO is a subsequent offering of shares by a company that is already publicly traded.
Some of the key differences between an IPO and an FPO:
1. Timing: An IPO is the first time a company goes public and issues shares to the public, while an FPO is a subsequent offering of shares by a company that is already publicly traded.
2. Purpose: An IPO is typically used to raise capital for the first time from the public markets, while an FPO is used to raise additional capital or allow existing shareholders to sell some of their shares.
3. Underwriting: Both IPOs and FPOs involve the process of underwriting, where an investment bank or a group of banks are appointed to determine the price of shares and to sell them to the public.
4. Market hype: IPOs tend to generate more market hype and media attention than FPOs, as they represent a major milestone in a company’s growth and are often seen as an opportunity for investors to get in on the ground floor.
5. Regulatory requirements: Both IPOs and FPOs involve regulatory requirements, but an IPO involves more regulatory scrutiny as the company is going public for the first time.
6. Share dilution: An FPO can result in share dilution for existing shareholders, as the company is issuing more shares, while an IPO does not have this issue.
7. Pricing: In an IPO, the price of the shares is typically set based on the demand from investors and other market factors, while in an FPO, the price may be influenced by the current market price of the company’s shares.
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