Difference Between Ipo And Fpo

As the financial market keeps expanding, an increasing number of investors are showing interest in investing in stocks. One common way of investing in the stock market is through initial public offerings (IPOs) and follow-on public offerings (FPOs).

In this article, we will help you understand the main differences between IPO and FPO.

Initial Public Offerings (IPOs)

An IPO is an opportunity for a company to raise capital by issuing its shares to the public. Companies that go public through an IPO issue a prospectus that contains all the information about the company's financial health, its plans for the future, and the risks involved in investing in the company. The purpose of an IPO is to help the company raise funds to support its growth plans, repay debt or focus on R&D, among other things.

The process of an IPO:

The process of an IPO begins when the company decides to go public and chooses an investment bank to underwrite the offering. The underwriter is responsible for setting the price of the shares and finding buyers for the shares. The underwriter also assists the company in complying with regulatory requirements, such as filing a registration statement with the Securities and Exchange Commission (SEC).

After the registration statement is approved, the company announces its intention to go public, and this is called the red herring prospectus. The red herring prospectus contains some financial information but leaves out some critical information, such as the price of the shares.

The next step is the roadshow, where the underwriter and the company's representatives meet with potential investors to explain the company's investment potential. After the roadshow is over, the price of the shares is determined, and the final prospectus is issued, providing full details of the shares' price and the company's financial data.

Once the shares are offered to the public, the underwriter takes the responsibility for finding buyers for the shares. After the shares are sold, the money raised is transferred to the company, less the underwriting fees.

Follow-on Public Offerings (FPOs)

Once a company goes public, it may need to raise more funds, or some of its existing shareholders may want to sell some of their shares. This is where FPOs come into the picture. An FPO is an offering of shares to the public by a company that is already listed on the stock exchange.

The process of an FPO:

An FPO may be made through a public issue or through an Offer for Sale (OFS). In a public offer, the company issues new shares to the public, whereas in an OFS, the existing shareholders sell their shares to the public.

In both cases, the company is already listed on the stock exchange, and the regulatory requirements are less stringent than in the case of an IPO. The company may not need to issue a detailed prospectus, and the price of the shares may be less volatile than during an IPO.

The most significant difference between IPO and FPO:

The main difference between IPO and FPO is that IPOs usually involve companies going public for the first time, whereas FPOs involve companies that are already publicly listed on the stock exchange. IPOs are, therefore, more regulated and more complex processes. The purpose of an IPO is to raise capital for future growth plans or to repay debt, among other things, whereas the purpose of an FPO is to raise additional funds or to allow existing shareholders to sell some of their shares.

Another significant difference between IPO and FPO is the price of the shares. In the case of IPO, the price of the shares is determined by the demand for the shares during the roadshow, which may make the price of the shares volatile. In the case of FPO, the price of the shares is generally less volatile, making it more attractive to conservative investors.

In conclusion, both IPO and FPO are important avenues for companies to raise capital, but the process and objectives of each are quite different. IPOs are more regulated and involve companies going public for the first time to raise capital for future growth plans, whereas FPOs are typically used by existing listed companies to raise additional capital or to allow existing shareholders to sell their shares. Understanding the differences between these two methods is essential for investors looking to invest in stocks.